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Undergrade sales: a sword with two edges?

Undergrade sales: a sword with two edges?

In the free-for-all that followed the lifting of quotas last July, boosting one's market share became a priority objective for each of the 50 coffee producers. While most origins chose to improve their competitivity in quality coffees, some have also embarked on an aggressive policy of marketing their low-grade coffees, especially to non-members.

There is logic in developing cheap undergrade sales, as such coffee is often abundant and uncommercialized. Mostly used by the producing country's industry for local consumption, it usually does not generate foreign exchange. Non-member consumers, for their part, have lost their price advantage over Members. As coffee tentatively inches its way back to a pre-July trading range, the same money buys coffee of lesser quality and many buyers prefer to go to lower qualities than to higher prices.

Furthermore, consumers in Eastern Europe, if they have learned to demand more coffee (which always figures prominently in the request for consumer goods), have not yet acquired the taste for the better qualities that they cannot afford.

However, a sudden development of undergrade sales is not without risk, as low grade coffees may end up competing against the same origin's better qualities instead of boosting the country's market share, thus causing a net loss in revenue.

A classic example of this is happening right now in Ecuador, where export sales of Consumos, a low grade of Robusta containing more than the 15 percent defects have apparently developed. Consumos are traditionally used by the local industry and their export is, in theory, prohibited, a rule which may have been overlooked recently. There have been reports that up to 12,000 tons of Consumos have been sold to North Africa, an area which uses regularly major quantities of better and expensive Robusta, 3%.

In this instance, since it is dubious that the importing country has increased its needs by 174,000 bags, it is almost certain that at least part of the Consumos would replace 3% Robustas, a loss to the producer and not a gain as had been planned originally. In addition, reports of the sale made local prices soar, which caused complaints in the industry and requests to uphold current regulations, i.e. to prevent the export of the Consumos. . . a fine mess!

To sum it all up, while the free market has made the sale of lower grades a genuine way to increase exports, producing countries must be careful, when such business develops, not to invade their own acquired market with cheaper coffee than they usually sell. One way to achieve this, as many producers have realized, is to regulate this type of sale, for instance authorizing it on a deal per deal basis, after evaluating each transaction's impact.

Undergrade sales have this inherent disadvantage that they do not boost the producer's image for quality. Let them at least make economic sense!
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Title Annotation:marketing lower grade coffee
Author:Leblache, Pierre E.
Publication:Tea & Coffee Trade Journal
Date:Mar 1, 1990
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