Price cut endangers Blue Mountain brand - Grant

The efforts to diversify Jamaica's coffee market is slow on results, heightening concerns here that producers are without leverage to push back against top buyer Japan, which is demanding cheaper beans.

Senator Norman Grant, the chief executive officer of Mavis Bank Coffee Factory (MBCF), says the move to cut prices could ultimately threaten the integrity of the premium Jamaican brand.

"Any significant reduction in the price of Jamaica Blue Mountain coffee could affect the brand positioning of Jamaica Blue Mountain coffee on the world's market, and the cost to rebuild the brand could be huge," Grant told the Financial Gleaner.

Green bean coffee prices have moved from US$27.50 per kilogramme to US$25.30, while the non-premium category earned US$20.59 per kg, representing a reduction in revenue for coffee dealers and farmers.

Only five per cent of Jamaican coffee is consumed domestically, the other 95 per cent is sold abroad through importers and coffee brokers.

Japan traditionally buys 85 per cent of green beans and 65 per cent of the overall volume exported. The base price to that market is said to be eight per cent below 2008 levels.

CIB director general Christopher Gentles had estimated in mid-2010 that farmers would lose as much as J$100 million from the current crop year. He also said last week that Jamaica currently had "no choice" but to yield to the demand of the Japanese for a cut in base price.

Grant takes a different view, saying that producers and brokers of coffee should band together to safeguard two centuries of top-end trade.

"Jamaica Blue Mountain coffee is in the gourmet premium category in the coffee market and, quite frankly, unlike the other origins, it is not treated as a commodity. Historically, the price that Jamaica gets for its green coffee is the highest when compared to other world coffees, and this has been the case for well over 200 years," he said.

Instead of reducing prices, green bean brokers across the world should look at expanding demand through promotion and product diversifi-cation; while Jamaican producers should focus inward to increase consumption in their home market.

"This should reduce the gap between demand and supply and thus result in stability in the price," he said.

Coffee earnings have been on the decline in the past few years as prices fall, but also because crops have suffered damage from storms.

In the last decade, over a seven-year span, the coffee industry earned US$30 million per year on average, said Grant.

"In the last two years, this has declined by 10 to 15 per cent and we could seen a further reduction of 25 per cent due to reduction in prices," he said.

But, price recovery can be realised in a three- to five-year period through a process of "more support to farmers, product and market diversification, and aggressive marketing of Jamaica Blue Mountain coffee as the coffee of the world," the senator said.

MBCF itself has laid claim to its best sales yet of US$3 million of coffee to the United States in 2009, amounting to 20 per cent of overall sales, brokered through its marketing agent, the Munn family-controlled Blue Mountain Coffee Inc.

Nationally, coffee inventory has been the subject of negotiations, and a push for new markets in the United States, Russia and China.

In the push to diversify, in mid-2010, Jamaica signed a deal with Hangzhou City Coffee and Western Cuisine Association, which represents some 800 cafés, coffee roasters and specialists, as exclusive importer of Jamaican coffee into China, initially for a period of two years.

The Hangzhou deal, sealed July 13, was valued at US$1.7 million (J$146m).

State-owned Wallenford Coffee Company also struck a deal with Starbucks Coffee Company that puts Jamaican coffee on the menu in 55 of the international chain's high-end stores. And the Mavis Bank Coffee Factory announced back in May that it would be supplying Barney's Coffee and Tea Company with 100 per cent Blue Mountain coffee through its 40 stores in Florida.

austanny@yahoo.com