Programs
Aims to Secure Premium Beans to Appeal to Discerning Consumers
By John Revill
July
15, 2013
LAUSANNE, Switzerland—Coffee
companies are increasingly lending support to farmers in Asia and Africa, part
of efforts to secure premium beans as they compete for discerning customers.
On Monday, Nestlé
SA NESN.VX +0.31%
said it was expanding a program in Africa that provides seedlings to Latin
American farmers producing coffee for the food giant. Nestlé, the world's
largest coffee seller, will also provide training and replanting programs to
help farmers in Ethiopia, Kenya and South Sudan.
"We
always need more coffee," Jean-Marc Duvoisin, who runs the company's
Nespresso business, said at an event for the program. "We always need more
good quality coffee."
Nestlé
isn't alone in investing in coffee farmers. Earlier this month, Mondelez International Inc., MDLZ -0.59%
the world's No. 2 coffee maker, opened a training facility for Vietnamese
farmers, while D.E. Master Blenders 1753, DE.AE +0.12%
the third-largest coffee company, has offered Honduran farmers credit and
fertilizers to boost their productivity.
Behind
the rush: A scramble for the premium beans needed to sell increasingly popular
single-serve coffee systems, such as Nespresso and Mondelez's Tassimo, which
generally cost more per serving than filtered or instant coffee. Although
coffee prices have dropped in recent months, coffee companies have had
difficulty acquiring high-quality beans for their systems because farmers in
Latin America and Asia—among the world's prime growing regions—are leaving
rural areas for cities.
"There
is a struggle for resources," said Frank Mechielsen, an agriculture policy
adviser at Oxfam. "Companies are afraid they won't have enough supply in
the future."
Shortages
of high-grade beans have been magnified by a rush of companies trying to jump
into the high-end single-serve coffee market. By 2015, sales in that segment of
the market are expected to grow more than 50% to $12.58 billion from $8.03
billion in 2012, according to market-research company Euromonitor
International.
Coffee
companies have also become aware of growing consumer sensitivity to the origin
of food products, a trend that intensified after horse meat was found in
European products that were labeled as containing beef. Companies are also
eager to sidestep concerns they could be exploiting workers, particularly after
roughly 1,000 were killed when a Bangladesh garment factory collapsed earlier
this year.
More
than one-third of U.K. shoppers said they bought products certified Fair Trade
in preference to ordinary products, according to a July survey by
consumer-goods research company IGD, up from 6% in 2006. To win certification
for their goods from the Fair Trade Foundation, companies must meet economic,
environmental and social development targets.
Smaller
coffee companies have already started securing their supplies from smaller
farmers, a move that is being copied by bigger players, such as Nestlé and
Mondelez.
"Quality
beans come from small holders, not the big plantations," said Wolfgang
Weinmann, who runs sustainability projects at London-based Cafedirect PLC, a
specialty roaster. "Consumers want more quality."
Deerfield,
Ill.-based Mondelez, which sells the Carte Noire and Jacobs brands, will train
roughly 1,500 farmers at its Vietnamese center. The company hopes to help
farmers boost productivity, as well as the quality of their beans.
Amsterdam-based
D.E. Master Blenders 1753 is also increasing its investment in sustainability.
The company hopes to get 25% of its coffee from sustainable sources by 2015, up
from 15% to 20% at present, even though that would reduce its profit margins.
Mondelez
is spending an average of $25 million a year over eight years; it brings in an
estimated $8.3 billion in coffee-related revenue a year. Nestlé spends 70
million Swiss francs ($74 million) a year on its coffee sustainability projects
for its Nescafe brand, and takes in an estimated $17 billion in revenue on
coffee products.
"It's
good, but companies make big profits from coffee and spend much more on
marketing," Mr. Mechielsen, the Oxfam adviser, said of the assistance
effort.
Lianne
van den Bos, an analyst at Euromonitor, said the programs can be beneficial in
marketing terms. "It is a good way to justify higher prices for
coffee," the analyst said. "Especially as people feel better about
drinking a cup of coffee that has been brewed in a sustainable way."
At
the event, Nespresso said consumers increasingly want to know what companies
are doing and whether they are acting in a responsible way.
Mr.
Duvoisin, the Nespresso executive, said his company's program, which has run
for 10 years in Latin America, would help it boost sales in the future because
it gives Nestlé access to a wider variety of beans.
"We
can offer more tastes," said Mr. Duvoisin. "We can offer more
interesting coffees to consumers." ------