Appendix E-J

Direct Trade coffee is important. We should all drink it this new year…but what is it? Oh, here you go:

1. The best way to get an exceptional cup of coffee, comes from knowing the hands that work on the farm.
2. Understanding the growers, plants, sites, sounds, smells and culture of each region, we can ensure that our coffee is not blindly accepted as fair or sustainable.
3. A commitment to frequent communication with our growers, giving each of us a voice in the bigger than business transaction of life and economies.

You’ve already started on this resolution…did you know that? Just by drinking at Everyday Joe’s.

But what about at your home? In your kitchen…on your deck…at your desk…on the front porch…looking out the window…in good company.

You could always buy the beans of Novo Coffee from Everyday Joe’s, but coffee from different roasters is like beer from different breweries. It comes to a point when you have a desire to try them all. A solution on the coffee front is here.

Enter the Direct Trade Coffee Club (they wrote that nice three-point summary up there). Currently a partnership between our old friends at Intelligentsia and the Grand Rapids-based Madcap Coffee, the DTCC (just coined that one) delivers Direct Trade beans to your home every month. A little bird told me they are evaluating a few more roasters and pursuing others with hopes to top out at six total, allowing each partner to provide the beans twice a year.

“We started the Direct Trade Coffee Club to connect consumers with the finest roasters of specialty coffee who purchase coffee direct from the farmer.”

The club also provides brewing, tasting, and seed-to-cup infos on their site. Information is the key, I hear. All that info & the ordering process can be found here. A wise way to spend that Christmas money, I say.

FURTHER:

• Join the Direct Trade Coffee Club
• MadCap Coffee Company
• Intelligentsia Coffee

Popularity: 1% [?]

Each week, a Intelligentsia’s Green Coffee Buyer – Geoff Watts- sends out his Nod. It is a very smart person’s version of the Everyday Joe’s Communique. More often than not, those Nods are relayed to you here, on Appendix E-J. This relaying is about a month and a couple weeks behind.

However, the latest Nod contained this note:

“Greetings:

Geoff Watts (Intelligentsia’s intrepid Coffee Buyer) is currently working on our Direct Trade offering from Peru, Cruz del Sur, and has limited connectivity. You know what that means, right? A big update next week.”

What does that mean for you? Well, not sure. But, it does mean that it gives me a week to catch up via a Nod Digest. Here we go…

Bikes & Africa (8/25)- Mr. Watts is in Rwanda. He is riding bikes donated by Schwinn via Bikes To Rwanda to the farmers. These bikes help ensure that the coffee cherries get to the washing stations before they begin to lose important characteristics and other things dealing with their deliciousness.

“They call Rwanda the “Land of 1,000 Hills” due to its rolling landscape, and we biked across at least six or seven of them on our way to the Kabuye washing station, which is one of three belonging to the Maraba cooperative. The ride was tougher than expected. Going up and down those hills was challenging even for the fittest among us. The incline is steep and the roads full of loose dirt, making traction a bit of an issue. On the downward bits I came close to disaster several times while trying to navigate the ruts and rocky patches at a relatively high velocity. My brakes were not that good and braking on loose ground isn’t a simple thing to accomplish. Fortunately there were only two minor casualties among the twenty or so riders, and both of them ought to recover just fine. (I wish that I’d had a camera ready…one of the wipe-outs was most definitely YouTube worthy!).

Our first stop was at a small farm with roughly 200 trees. That’s the way farms are measured here, in tree count rather than in hectares. Really they are more like coffee gardens, super tiny compared to even the smallest farms in Latin America. The farmer we met was in his late fifties, with 10 kids (and one more on the way!). This was one of three small plots he had. In total he will likely earn about $1,000 this harvest season from his coffee, a relatively large income when compared to the national average, which is somewhere around $350 annually. But he is worried about the future as the land resources become pretty miniscule when divided 10 ways. This is a common problem facing African farmers. As the populations continue to explode, resources become increasingly scarce. As it is, this entire country is already cultivated. There really is no room whatsoever to expand and every inch is accounted for. And the soils are getting worse as a result of the widespread planting of Eucalyptus trees (a gift of the Belgians) that make for good firewood and building materials because of their quick growth but have a very negative impact over time as they suck the water table dry and worsen the acidity of the soils.”

The Nod then took a couple weeks off for a wedding. Then came…

The Coffee To End All Coffees (9/19)- In the concert industry, there are awards. Best indoor venue, best outdoor venue, etc. For some large number of years in a row, Colorado’s own Red Rocks Amphitheater won the best outdoor prize. So many times, in fact, that it is now known as the Red Rocks award and Red Rocks is removed from the running.

There is a coffee like this…

“and it goes by the name of Esmeralda Geisha. It is indisputably the most revered coffee the world has seen in decades. Among coffee professionals and tasters it has gained a reputation as being in a category by itself, so profoundly flavorful and unique that it cannot be fairly compared with other coffees. Among connoisseurs it has achieved an almost transcendental status, capable of inspiring sensorial awe.”

So why is this so fantastic? It seems to be because of the long journey it has traveled from coffee’s roots in Ethiopia. This particular tree was taken to Kenya in 1931, then Tanzania in 1936, then Costa Rica in 1953, then Panama in the 1960s…

“But it was soon forgotten, as it was much lower-yielding than other available varieties and farmers did not see any advantage to planting Geisha when they could get much better production out of Caturra or other hybrids.

No one talked about or thought about Geisha until 2004, when Daniel Peterson of Hacienda La Esmeralda decided to investigate these odd-looking, tall and spindly trees that were growing on his family’s farm. He harvested and processed them separately from everything else, and then on a whim (and with much reservation) entered them into the 2004 Best of Panama competition. To his astonishment, it captivated the jury to such a degree that many were awarding perfect 100-point scores in the competition, an extreme rarity among the cupping crowd. Many thought it was a trick, that someone had slipped an Ethiopian coffee on the table as a surprise. The coffee was so floral, so seductively sweet and aromatic, so honey-drenched and alive with tropical fruit notes that we all had a hard time believing it was really a Panamanian coffee—it defied everything we had come to expect.”

Wild…and now it sells for $130 per pound- UNROASTED.

That was interesting, and Watts could probably use a bit of that Esmeralda before spending a lot of time on airplanes back in the United States…

Here and There and Chemistry (10/3)- Great coffee deserves to be enjoyed as fresh as possible. We believe this. Several shops are beginning to brew one cup at a time via various methods – Chemex, Clover, French Press. You order a cup of the brew you want and it is delicious.

“You see, brewed coffee changes continuously as it sits, with or without applied heat. All coffees contain some amount of chlorogenic acid, a mildly bitter acid which slowly breaks down into quinic acid (the same thing found in tonic water), imparting a sourish taste to the coffee. Like most reactions, this happens faster or slower depending on the temperature. But one thing is certain—after 30 minutes or so the coffee will have changed, irreversibly, and lost just a little of its perceived sweetness and vitality.”

At Method in Atlanta, Mr. Watts enjoyed a Kenya before hopping on the plane to L.A. (which he loves and is the site of Intelligentsia’s new roastery). After a couple days there, it was across the country to the NYC.

“On Wednesday night we held the grand opening of our new training space in Soho, a cool little joint right on Broadway. I was amazed to see so many people come out, and there were a hundred or more people in attendance. Very good stuff. I’m excited to see what happens with the NY coffee scene over the next several years. It has been stuck in time when it comes to coffee, lagging far behind the impressive movements that have developed in the Pacific Northwest and spread slowly Eastwards. Perhaps it’s a sort of stubbornness and obsession with tradition that has held the Big Apple back all these years. Maybe it’s the incredible costs of doing business. Either way, true Specialty Coffee has finally arrived, and I get the sense that New Yorkers are really going to embrace it. At least I hope so—the country’s biggest and most famous city really ought to be drinking the best coffees this planet can produce, it just makes sense.”

Then it was back to Chicago before heading off to Peru, where we’ll hear from Mr. Geoff Watts next.

Further:

• Bikes To Rwanda
  
• Article about Esmeralda

Popularity: 26% [?]

Each week, we get The Nod – the e-mail newsletter from our roaster, Intelligentsia Coffee and Tea. Usually, the content of said Nod is rather interesting, and worth passing on to you.

Last week, the Nod arrived in my inbox and I opened it and it was long. Real long. Perusing it, I could tell it would be interesting. Geoff Watts – author of The Nod & Intelligentsia’s VP of Coffee – knows quite a bit about many things, and perhaps the primary thing is coffee. In this latest edition, he explains the rising cost of Kenyan beans…an explanation that can, for the most part, be translated to many coffees and probably many of the other things Mr. Watts knows quite a bit about.

So, in order to assist you in your navigation of this explanation, a handy little summary is below (and is also offered at the end of Mr. Watt’s essay). Click on a point of interest and you can read the expanded version. I do, however, recommend reading the entire thing in context. Just start below the summary if that is your desire.

The Summary:

• Big rises in costs of production at the farms in Kenya.

• A shortfall of volume and of quality coffee in the recent harvest, leading to greater competition over top quality lots.

• Our movement towards Direct Trade in Kenya and investment in the farming societies and in building relationships.

• The falling value of the dollar.

• Greater costs of production here in the US with the costs of everything from roasting, packaging, and transporting having gone up.

• A reworking of the quality pricing model to better estimate real costs of production and attribute appropriate value to exemplary/exceptional quality coffees

• And of course the coffee is among the best harvested the entire year in Kenya, so you know it is worth it, my brethren.

The Nod:

Hola:

Last Friday saw the release of one of our favorite, and in my humble opinion, best coffees. A question that we have been asked since this time is: What’s up with the Kenya prices? Why have they risen so sharply this season? There are a lot of things that have contributed. I’ll try to explain as clearly and concisely as I can, knowing full well that the latter has never been one of my strong suits. Let’s break it down into a couple categories:

1.) The rising production costs at origin.

This is not just occurring in Kenya. EVERY coffee producer I know has seen coffee production costs rise dramatically over the last two years. It is a worldwide phenomenon. What has gone up?

A.) Fertilizer and Transport costs. This is directly related to the rising prices of fuel worldwide. We’ve felt it here in the US, but man….many developing countries feel it even harder because they do not have any buffer whatsoever. Their governments do not have the kind of reserves we’ve got or the ability to subsidize prices for farmers. So while fuel costs have risen profoundly here, they’ve gone up at an even faster rate in many coffee producing countries. As a result, everything that requires energy to produce (fertilizer is just one example) is also more expensive now. I was recently examining fertilizer costs in Guatemala and found that in many cases it has more than DOUBLED over the last two years. So the farmers are paying more for inputs than they ever have. Transporting the coffees overland (farm to wet mill, wet mill to dry mill, dry mill to exporter, exporter to port) has gotten way more expensive as well, due once again to fuel costs.

B.) Labor costs. Labor is often the number 1 or 2 most significant cost of production on a coffee farm. It keeps getting more expensive as the labor force dries out. This is especially true in Central America where there has been (and continues to be) mass emigration to urban areas and to the United States. In Africa it is not quite as big a deal as labor is still abundant in many places, but they are still facing the problem of the “aging farmer”. Most coffee farmers are in the latter third of their lives and increasingly find it more difficult to put in the work needed to manage a coffee farm to its top potential. Younger generations have not shown an interest in being coffee farmers. Why would they? They look at how their parents and grandparents have fared and they see the poverty and depressing commodity cycles and mercilessly rising costs and intense climate impacts and the sheer unpredictability of it all and they say “no way!” Why would they want to follow in their father’s footsteps when the path has failed to take them anywhere?

C.) Cost of Production per hectare has gone way up due to falling productivity. There is always a chain reaction that takes place when coffee farmers aren’t making enough money for their crops. First they stop making inputs (they use less fertilizer, spend less on husbandry, stop pruning, and stop planting new trees) and then they cut costs during harvest. This means fewer cherries per tree and more disease and fungus problems as trees become old and weak. It means less care taken in selecting cherries for ripeness. It means the per-hectare cost of production is higher than ever while the quality has gotten worse! Trees growing in poorly managed and nutrient deficient soil get quickly debilitated. They don’t produce as much coffee and they struggle to bring the fruits to full maturity. The reality is that today the costs of production on most coffee farms (and other agricultural products too) are WAY higher than they were even two years ago, sometimes by as much as 50%. The market is going to need to adjust to this somehow, or a lot of farmers are going to be in big trouble over the next couple of years.

2.) The Kenyan Auction system dictates market price.

The Kenyan Auction system was the model on which the Cup of Excellence was founded. It has consistently been the world leader when it comes to delivering the BEST price per pound for coffee of quality. Every year there are a handful of coffees that crack through into the $4.00+ range and sometimes quite a few. It is a great system for finding “market value”, as there are close to 20 exporters who compete at auction to purchase the best coffees. Each exporter receives an “auction book” and accompanying set of samples every week, and each Tuesday there is a live auction during which all those coffees get put on the block. There can be ferocious competition sometimes, especially whenever a true 90+ coffee passes through.

This season was a low crop and the general quality was not very great. When that happens, the prices for the best coffees get even higher than usual since everyone is scrambling to get a piece. That’s the nice thing about the auction from a farmer’s perspective. It also rewards scarcity, so when there is a down year in volume or quality, it drives prices for the good stuff even higher than expected because various buyers are fighting over a smaller number of available coffees.

Unfortunately, the individual farmers are not always beneficiaries of these nice prices. The link from farmgate to auction is not as clean and direct as it should be, and layers of organizational inefficiency (and outright corruption as Kenya as a nation has managed to institutionalize corruption like no country I’ve ever seen!) eat away at the profit until there is next to nothing left for the farmer. Banking is screwed up there, with interest on debts overwhelming any income.

So while the auction has yielded many clear benefits, there is still a lot of work to be done to make the system sustainable, meaning making it viable for the farmer.

This is the first year that Intelligentsia has begun to purchase some Kenyan coffee using our Direct Trade model. It is super-freaking-exciting to me, because I’ve wanted to work more closely with farmers in Kenya for almost a decade. It is my favorite coffee year-in and year-out, and it has always been profoundly saddening that the farmers, despite great auction prices, never seemed to really be able to move forward.

About half of what we purchased this year was purchased under Direct Trade principles with prices negotiated directly with the farming communities, full transparency in the chain, and quality rewarded with premiums. It is a significant step for us and for Kenyan farmers as it was not permitted under law to deal directly with farmers until about 22 months ago, and today the huge majority of coffee is still passing through the auctions.

We WANT TO BE AN EXAMPLE. We want to show Kenyan farmers what is possible and participate as leaders in the effort to re-engage farmers and introduce new expectations about transparency and commitment at the farm level. We want to earn the trust of the farmers and prove to them that pursuing a long-term, Direct Trade relationship with Intelligentsia is a great option for them. Based on lots of experience buying coffee in Kenya, it is my opinion that we’ve partnered with some of the best cooperative groups in the country, in the heart of what I consider to be the top growing region in Kenya.

I’m hoping that next year all of our Kenyan coffee will qualify as Direct Trade and that we will be able to sell it that way. For now it should be considered “Direct Trade in Transition”. This season we purchased some coffee in the auction and some directly, all from the same cooperatives whose coffees we’ve been buying in the auctions for several years. For any DT system to work in Kenya it is vital that the farmers are able to see a true benefit by selling direct versus selling through the auction. So the auction will continue to function as a sort of “market regulator”, at least on the high end, and at least until Direct Trade takes hold and farmers begin to really understand the value of working closely with roasters and establishing reliable, long-term markets for their coffees.

3.) The Falling Value of the Dollar

We feel this pretty hard-core in many countries. The problem is that farmers pay everything in the local currency, pesos, shillings, quetzales, francs, cordobas, lempiras, but they get paid in dollars. So labor, fertilizer, bags, boots, everything has gotten more expensive for the farmer due to the fact that the local currency is worth far more versus the dollar than it used to be. If this continues, at some point the industry at large will need to decide whether or not the coffee market can continue to be tied to the dollar since another 5-10% drop in value will make the equations completely untenable for the farmer. Even without adjusting for inflation, most farmers are making LESS today than their parents did…in real dollars per pound. That is not acceptable.

4.) The rising costs of production here at home.

As you know, Intelligentsia is a company that believes in constant research, development and innovation. We’re freaks about quality, and we spend money, time, and energy to make sure we get it right. That’s why we’ve invested in roasting locally in LA, that’s why we keep hiring staff for Quality Control and Roasting, and that’s why we invest so much in our Baristas. We’re always doing things to try to make our coffees even better, and there is a price that comes with that. I would hazard a guess that we have one of the deepest teams in the industry when it comes to coffee expertise and knowledge.

But beyond the costs of innovation and intense quality control operations, our raw materials costs have risen sharply. Fuel costs are high, and we depend on fuel to roast and deliver coffee. It runs our roaster’s afterburners, which clean the exhaust to ensure that we are good stewards of the local environment, but those suckers eat up gas like it was candy. We will probably need to invest in alterative technology soon.

5.) Coffee has always been very under-valued and under-priced.

There is another point that must be made, one that is to me more important than everything I’ve just mentioned: The fact is that coffee has never been valued correctly to begin with, dating back to well before all of the recent economic downturns. The only coffees that have succeeded on a large scale over the last 20 years in getting the value they should have been a handful of well-known brands from Jamaica and Hawaii (Kona). And as we all know, those coffees usually cannot even hold their own in the cup when compared to the best coffees from places like Kenya, Ethiopia, Rwanda, Guatemala, Bolivia, and so forth. They get smacked up and down and exposed for being very well cultivated, very clean, very well-handled but altogether too mild and, for lack of a better word, just boring.

When I say “the value they should” what I mean is this: valuation based on actual costs of production and real intrinsic/material quality. Just like any other business, coffee farmers ought to have the opportunity to sell their coffees at a price that nets them a profit, and that is tied to measurable quality. The better the quality, the more a coffee farmer can stand to earn in a competitive market.

Let’s select a couple of industries for comparison. The wine, spirits and beer industries all have some obvious similarities with coffee. Wine has a lot in common with coffee with regard to the way it is produced (fruits produced under specific environmental conditions and then processed into liquid goodness) and in the way it is talked about. The language of tasting is nearly identical between them, although coffee is actually the more chemically complex of the two beverages and has a greater range of potential flavor. When we talk about beer and spirits, there is similarity with coffee because these are considered “luxury goods” and they are consumed as liquids.

Now consider the range of prices you might find when shopping for a nice bottle of Scotch whiskey. You can probably find a fairly cheap bottle at your local supermarket, something that is kinda nasty going down and even worse once it has had time to soak in. You can find something mid-range, a decently distilled blend of decently produced malts. And if you go to specialty importers or big-time liquor stores you’ll find a huge variety of small-batch, limited production single malts that have been aged for many years to improve the texture, perceived sweetness, and complexity. The prices will range from $10/750 ml for true swill that will surely pummel you into joyless submission by the next morning to perhaps $150 for the finest commercially available single-malts. Most Scotch drinkers likely find their place of comfort somewhere in between, happy to pay $30-$40 for a nice bottle of Glenlivet or Macallan.

With beer it is the same…your basic six-pack of aluminum Milwaukee’s Best cans can be had for a couple of bucks, while you could easily pay $12.00/16 oz bottle for a nice Belgian small-batch.

Surely wine has been the best explored by most consumers when it comes to “tasting the range” and learning about what the low-end (frighteningly astringent and sour and ethanol-like with big-time headache power) and the high-end (ah, kill me now while I am floating on this cloud of sweet and savory bliss) can deliver on the pleasure scale. Most wine people, like beer or scotch drinkers, settle somewhere in the upper-middle of the range. No cheap stuff, but save the tip-top-barely-out-of reach shelf for those who have made a lifestyle out of sipping priceless delicacies. The $10-$40 range seems to serve people quite well when it comes to measuring out a nice pleasure-to-value ratio.

Then we could even expand the discussion to cheese, where the scale takes us from Velveeta all the way to the nicest 15-year old hard cheese with more taste per square millimeter than there are bad jokes in Marc Johnson’s arsenal. (Marc is our Marketing Director, he tells lots of bad jokes, and my comment means infinite taste, for those keeping track at home.) One costs $1.50/lb, the other costs $50.00/lb. One makes you fart and weep and rot away from the inside, the other one makes you want to high-five the cheese guy.

My point is that consumers have learned how to differentiate value pretty well for most products out there in the world today. They, of course, sometimes attribute value to certain things due to reasons of fashion or trend. And sometimes clever marketing combined with gullible consumers can lead to freaky pricing for what are really low-quality goods. But most of the time people come pretty close to getting it right, over time.

When you consider coffee, one thing to realize is that there is a very small amount of truly high-quality coffee available in the world. Just isn’t produced very much. Why? One reason is that it is very hard to accomplish. Really, really hard. The second is that the world has rarely been willing to pay farmers what it actually costs to produce this kind of quality. Instead of being priced according to actual costs of production, with better coffees getting additional premiums as a result of their better taste, coffee is priced like corn, cotton, soybeans, petroleum, or other commodities out there. It is a futures market that has always determined value.

Much has been written about the “coffee crisis” of 1999-2004, which put hundreds of thousands of coffee farmers out of business because the prices people were paying were below even the most basic, rawest costs of production. One thing that was exposed was that we as consumers (and those of us working in the coffee business as roasters, retailers, baristas, restaurant owners) really need to re-think the way we understand value as it applies to things like Specialty Coffee, and coffee in general, which is not actually a traditional “commodity” in any practical way. The range of different qualities, different production costs, and different cultural traditions behind the coffee are huge and diverse.

The reality is that we fight nearly a century of history during which coffee was bought and sold as a commodity and where the idea of the “bottomless” cup became entrenched in the minds of most consumers. Coffee has usually been a loss-leader for most restaurants and shops, given away for free or for next-to-nothing. Cheap coffee is far-and-away the norm.

Our objective is to try to get things right. We want to pay farmers what these coffees are really worth. When someone purchases Intelligentsia coffee, they are getting an amazing deal. Some of the best coffee produced on the planet for what still amounts to very little compared to what one might expect to pay for any other consumable the sits at the top end of the quality spectrum. That’s not to say we over-pay. We’re not a charity, and I do not have much faith in development models that show up in Africa or anywhere else and give money away without building anything that can last. That model has proven over the last 30 years that it simply doesn’t work, and in many instances has even made the problem of poverty WORSE.

We pay what both we and the farmers agree to be the right price, call it whatever you like: fair, just, honorable…those are just adjectives. The whole nature of this business, as I see it, is to figure out what farmers need to earn in order to produce extraordinarily great coffee. That’s what I do; I work with them to figure out how much everything costs, to quantify those things, and make sure that the farmer, who shoulders so much responsibility and so much risk in this whole deal, is profiting from his/her work and is in a position to grow and evolve. We want to contribute to building a coffee industry where growing coffee is an attractive career choice. Where the children of coffee farmers will decide they DO want to continue the family tradition, and can make that choice without needing to be certifiably insane.

That might have been a bit too long winded, a bit too lengthy to divine the key points. In acknowledgement that this is likely true, here is a summary. In short, the prices we paid this year for our Kenyan coffees reflect:

- Big rises in costs of production at the farms in Kenya.
- A shortfall of volume and of quality coffee in the recent harvest, leading to greater competition over top quality lots.
- Our movement towards Direct Trade in Kenya and investment in the farming societies and in building relationships.
- The falling value of the dollar.
- Greater costs of production here in the US with the costs of everything from roasting, packaging, and transporting having gone up.
- A reworking of the quality pricing model to better estimate real costs of production and attribute appropriate value to exemplary/exceptional quality coffees
- And of course the coffee is among the best harvested the entire year in Kenya, so you know it is worth it, my brethren.

And with that, read even a bit more about Kenyan coffee, the subject of this week’s Nod.

As always, find our Nods at:
http://www.intelligentsiacoffee.com/origin/offerings.

Best,

Geoff Watts
VP of Coffee
Intelligentsia Coffee & Tea

Further:

• Intelligentsia Official Site
• Kenya- Gaturiri Auction Lot Fact Sheet

Popularity: 29% [?]

The Nod.

It is the newsletter sent out each week by Mr. Geoff Watts. Mr. Watts is the VP of Coffee for Intelligentsia. Intelligentsia is a mighty fine coffee roaster. We serve the beans they roast. Their passion, however, extends far beyond coffee. That passion is palatable in this week’s letter from Mr. Watts. Parts of it remind me of when Everyday Joe’s first opened 5 years ago, and Suzanne worked without pay just so it could get going because she believed in what could happen. Enjoy.

Hola:

To recap last week’s message, I spent a lot of time talking about, well, time. Having just returned from a trip to Africa, I also discussed our work in Rwanda and the challenges for cooperatives there: a lack of strong leadership, interference from both the government and private companies, and even electrical power outages. This week, I feel good talking about some of the positive things happening in Rwanda.

This year at Nyakizu the dozens of workers at the cooperative washing station have not yet been paid. Farmers delivering cherry are forsaking immediate cash to support the efforts of their group, tendering the coffee without any payment whatsoever. It is a staggering display of commitment and loyalty. They have new leadership in place, starting with President Emmanuel Hibamukiza, a relatively young and very charismatic guy who also works as a schoolteacher in the local village. One of the farmers, an old gentleman named Narzon Muharinkya, has been there since the beginning and recounted the leadership problems they’d experienced in the past. For the first time since Nyakizu was founded, he feels good about the group and has a renewed optimism that they will be able to move forward from here. I cannot begin to explain how his sentiments touched me as we sat together in a grove of trees just beside the station, talking about how to fix the problems and what must be done to build stability within the group and ensure that the cooperative can grow and thrive as it moves forward.

Still nothing is certain. I wrote a letter of intent last month to help the group secure pre-financing through Root Capital, a micro-finance organization. RWASHOSSCO, led by the very capable and sympathetic Gilbert Gatali, took out a loan in order to bail out the coop this year and prevent the bank from taking the washing station. This season is critical. If anything goes wrong, it will mean the end of the cooperative. But I feel good about what lies ahead. They’ve pushed through incredibly difficult times and have grown smarter for it. The stage to succeed is set in a way it has never been in the past, and we are going to do everything in our power to make this thing work. The coffee here is incredible, and it was easily the best of the Rwandan coffees we purchased last season and the real potential has not yet been touched.

From Nyakizu we drove to Kibuye, a small town on the edge of Lake Kivu in the western part of the country. Kivu is a gorgeous lake separating Rwanda from the Congo, filled with delicious little fish called Sambaza. They are just about the only fish in there as the lake is full of natural methane that rises up from the bottom and makes it nearly uninhabitable.

After a night’s sleep we took off for Nyabumera, one of the washing stations we are buying from in the region. Previously there had been four mini-stations under one umbrella of management, collectively known as Rusenyi, but large geographic distance separates the stations (nearly an hour and a half drive over bumpy roads to get from one to another) and the coop leadership proved unable to keep things together. A bad accountant was removed from office last year and a decision was made to split the coop into two groups based on geography. Nyabumera and Ruvumbu now fall under one roof, independent of the others, and just as with Nyakizu they’ve got a new set of leaders and a new lease on life. The same issues apply here—motivating membership to deliver cherry despite the immediate appeal of the competing stations that are luring away farmers who have lost faith in the cooperative and are pursuing short-term fixes rather than trying to build strength through solidarity with the group.

Rusenyi is an enchanting place. It is one of the lushest regions in Rwanda, with softly rolling hills and gorgeous views of the lake. It also stands out as one of the only areas in the country that mounted a strong resistance to the interahamwe militias that catalyzed the genocide in 1994. They are a strong and impressively fearless people.

When we got there, I went immediately to the drying tables to have a look at the parchment. I was surprised as I reached out to grab a handful—one of the women sorting defects out stopped me, and told me I could not touch the coffee until I washed my hands. Never in 7 years of prolific origin work in well over a dozen countries have I ever experienced this! It was an inspiring moment. Touching the parchment with unwashed hands really shouldn’t make any difference (provided the hands in question were not covered in oil or paint or something), but they were taking no chances! They were protecting the quality with astounding vigilance. I went and washed my hands and then headed back to check out the coffee and talk with the women working on the parchment.

We met with the group for a couple of hours, discussing both the past and the future and strategizing on ways to push this thing forward. More communication, more pre-financing, more outreach in the fields, and more technical assistance form the backbone of the prescription. They thanked us for solar flashlights that they’d received last season and asked quietly whether or not they might be able to get more since the farmers really loved them and there were many who hadn’t gotten one. There will be more flashlights coming, we will see to that, one way or another.

When we finished our meeting we headed down to Kibuye again to stop in at the cupping lab and taste some coffees with Emerthe and Rose, two of the young cuppers who I had helped train years ago. It was great to see them again. They still have a lot of work to do to continue developing their skills, but it will come with time. After we cupped, I took a quick ride on one of the Yamaha bikes sitting around and was having a grand old time until I rounded a corner with a little too much speed and went crashing to the ground. Ayyy! I couldn’t restart the bike and ended up walking it back to the lab, feeling more than a little embarrassed.

From there it was a three-hour drive back to Kigali and an early end to the day, due mostly to the fatigue from lots of driving and lots of talking. After a somewhat refreshing sleep, we moved on to Humure, another coop we’ve worked with for the last couple years. It’s way up in the North, approaching Tanzania. Along the way you pass a lake where Paul Kagame, president of Rwanda and a captivating figure who I am still dying to meet, has a home. It takes just under three hours to get there, and when we arrived, we were greeted by the whole crew: Claude Sebamana (the new President), Veniranda Mukankusi (VP), Eustache Inite (Secretary), Principe (GM), Eugenie Mana (Acctounting), Jean de Dieu (Maintenance.), Gasana Gideon (Production Officer), John Bavumire (Security), along with Emmanuel Getera (Technician) and about 20 other farmers. Things looked much, much, much better than the last time I’d been there. Clearly they’d taken the advice from last year to heart, and across the board the systems for controlling quality were improved.

Humure started as a group in 1999, but back then it was a different ballgame altogether. I’m amazed they’ve stayed together, given the abysmal value that Rwandan coffee had in those days. Now they’ve got 372 members. They are still paying off their 2004 BRD loans that were taken out to pay for the washing station construction. But they are advancing. Of the three coops we visited, Humure is the strongest and best organized and accordingly are the furthest along in getting square with the bank. They’re also trying to diversify; many of the women have been weaving baskets and asked us if there was a way we could sell them in the States. I’m going to get that worked out…the baskets are gorgeous, very well-made, each one requiring about 30 hours to complete. I have lots of them at home, some that I’ve bought and many that were given to me as gifts over the last five years. You should have one too!

After a long and very productive meeting with the group in which we discussed plans for the current season and ideas about how to keep this thing moving forward, we drove back to Kigali once again. I have some friends there who run a media company, and they’ve just recently opened a cool bar attached to a cool Italian restaurant called Papyrus. I went up there with Peter Giuliano and Clara, a girl from Portland who directs a program called Bikes to Rwanda. The food was delicious, especially the cheese that comes from a nearby farm. The wine was cheap and gave me a headache, but at least it tasted OK. Still, I’ll give the place thress stars. One of the best food options in Rwanda, where one cannot be especially picky.

Right now I’m in Heathrow airport, sitting, and waiting. I’ll be happy to get back to Chicago tomorrow morning, or this morning, or however you want to reckon it. But the stay at home will be a short one…I leave the following morning for Colombia.

This week we are proud to announce the release of one of our newest Direct Trade Offerings: El Machete, Panama. Since this is a new coffee for us, I am happy that it is coming out now before all our old favorites from Central America are back in season. El Machete gets a couple weeks in the spotlight, and it will really shine. Sarah Kluth, our Chicago-based Director of Quality Control, says that you can expect “a mouth-watering syrupy body full of blackberry, caramel, fudge, and hints of citrus.” Sounds good to me!

As always, find our Nods at:
http://www.intelligentsiacoffee.com/origin/offerings.

Onward,

Geoff Watts
VP of Coffee
Intelligentsia Coffee & Tea

Popularity: 22% [?]

I was looking around on this thing called “YouTube” yesterday and found the video below, made by our coffee family at Intelligentsia. It is quite good and worth your time. That’s right, I know the value of your time. Please watch. Love you.

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Popularity: 22% [?]

From Intelligentsia, the coffee roaster who’s beans we proudly brew.  

Greetings:

This week’s Nod is something just a bit different. Since there are probably many of you have never met Geoff Watts or Sarah Kluth (Intelligentsia’s Vice President of Coffee and Director of Quality Control, respectively), we thought that it might be interesting to see them live and in action.

On Wednesday, Geoff and Sarah were invited to ABC 7 here in Chicago to talk about cupping and we invite you to follow the link:

ABC 7 News

Popularity: 16% [?]

At Everyday Joe’s, we brew the beans of Intelligentsia Coffee out of Chicago. We made the switch to them about 9 months ago, and haven’t regretted a minute of it. Much of our delight is due to their beliefs about the way coffee farmers should be treated. Read below for more in this short essay by Geoff Watts, Intelligentsia’s VP of coffee.Hola:

With all the activity in the coffee marketplace these last weeks, I think it is a good time to reflect a little bit on the industry and coffee valuation.

Let’s start with a quick history. Coffee has long been an important crop for international trade as far back as the 19th century, and many countries around the world still depend on coffee as their principle source of agricultural export income. By the early 1900’s coffee had come to represent more than half of the total exports in places like Brazil, Guatemala, El Salvador, and Nicaragua. Today, it is one of the most heavily traded commodities on world markets.

The way coffee has been valued over the years, however, has changed dramatically. In recognition of the importance of this product, a commodity exchange was set up to trade coffee futures in the early 1800’s. From the early Arabic coffee monopolies in the 17th century to the Brazilian land barons of the 19th century, there have always been individuals or organizations on the supply-side whose activities have had a huge global impact on pricing, but the tension between supply and demand generally kept it in balance. This situation continued unimpeded until the 1950’s when a huge and unprecedented price spike led to an over-planting of coffee trees. This excess supply then caused a major shift in the supply-demand equation. Prices dropped because of over-production, and in 1963 the International Coffee Organization came into being as a way to regulate the trade.

In the early sixties a quota system was established that induced producing countries to withhold supplies and limit production whenever volumes rose. The idea was to keep prices relatively stable and to avoid years of massive over-supply that could cripple the economies of the developing nations who relied on export income from coffee. Some say that US participation in the agreement (at the time the most important coffee-consuming country in the world) was motivated in part by Cold War fears and the belief that economically struggling Latin American countries could be pushed towards communism. There could be some truth to this as the US coincidentally withdrew its support for the agreement in 1989, just after the fall of the Berlin wall and the “end” of the Cold War.

The quota system did help keep the market fairly stable, but it was still subject to some significant ups and downs despite the price regulation mechanisms. In 1973 prices rose dramatically, and the quota system collapsed in the face of a rising market. In 1975 the famous Brazilian “black frost” drove prices through the roof, again leading to more intense planting in the following years. Predictably, supply went up again several years later and the market crashed, leading to a reintroduction of quotas in the eighties. At that point a trigger system was established whereby the quotas would turn on and off at certain pre-selected world production volumes. In 1986 the upper level trigger went off and quotas were again dropped, only to be reintroduced at the end of the year. They stayed in place until the US withdrawal in ‘89.

Here’s a look at the International Coffee Agreement from 1983:

“…a system of export quotas operated when necessary to secure price stability within ranges agreed annually by exporting and importing Members at meetings of the International Coffee Council. Quotas were suspended if prices rose above certain levels and subsequently reintroduced if prices fell. The quota system operated in such a way that consideration was given, in setting individual quotas, to past export performance and to the stocks of coffee held in exporting Member countries. The export quota system was supported by an obligatory system of controls.

Each export by a Member was covered by a Certificate of Origin. Importing Members did not admit coffee from Members unless the Certificate was validated by coffee export stamps issued by the Organization. When quotas were in effect, importing Members were required to limit their imports from non-members and exports to non-members were closely monitored. Carry-over stocks of coffee in each exporting Member country were verified annually, involving the physical counting of stocks in many hundreds of warehouses scattered throughout the territories of producing countries.

The verification took place at the end of the crop year of each country. The Council was required to coordinate national production policies to achieve a reasonable balance between world supply and demand, and there was a Fund for the promotion of consumption financed by exporting Members. Promotional campaigns were conducted in the major importing countries in cooperation with the trade and the resources of the Fund were used to sponsor research and studies related to the consumption of coffee, especially in the United States of America and Europe. The Promotion Fund financed coffee centers, scientific research and training programs to help improve the quality of coffee and its general image. In the 20 years during which promotion activities were financed by a Fund, exporting Members contributed some US$100 million.”

You can see that everything revolves around supply and demand issues and price controls. A lot changed in the ensuing years, and here’s a look at the 1994 version of the agreement that came into being after the quota system was abandoned completely:

“…encouraging Members to develop a sustainable coffee economy promoting coffee consumption; promoting quality of coffee; providing a forum for the private sector; promoting training and information programs designed to assist the transfer of technology relevant to Member countries; analyzing and advising on the preparation of projects to the benefit of the world coffee economy.”

The coffee trade moved along in the 90’s and the market began to change dramatically as Specialty coffee took off and the world got to know Starbucks. Prices went up and down a lot as the market became more volatile during a period of changing consumption patterns and changing political economies at origin. Then in 1999 the collapse came, known today as the “Coffee Crisis”. Ups and downs had become normal, but this was the first time the depression was sustained for so many consecutive years. It crippled the industry. Many farms went out of business, coffee quality diminished, and we saw all sorts of reactions from the increasing popularity of certification systems like Fair Trade to new hedging strategies and increased interest in the futures market on the part of fund speculators.

For four more years the prices stayed in the gutter and producers scrambled to survive. Many abandoned their farms and moved to the cities. Bank foreclosures were common. It was a terrible time to be a coffee grower. A big part of the problem was the introduction of cheap Vietnamese Robusta coffees. That country received a lot of donor money and loans to rebuild after the war, and it invested hugely in coffee production. The US lifted their trade embargo in 1994, and the flood of cheap, low-quality coffee started to arrive. The supply-demand ratio tipped over completely and things got weird.

Intelligentsia was still very young at the time, and we saw both the highest and lowest markets in centuries within the space of a couple of years. It became very clear, very quickly that something had to change—and that the relationship between coffee quality and coffee prices would have to be radically redefined if there would be any hope for great coffee in the future. If quality is to be maximized, producers need stability and profit. It costs more to produce better coffees, yet as I’ve mentioned a hundred times, it is a long-term process. Investment in quality on the producer’s side starts a whole year before the coffee is ready to sell, and so it becomes a risky proposition to spend cash on trying to improve the coffee if there is no guarantee that it will come back to the grower in the form of higher coffee prices that reward the better quality.

We’ve been evolving our Direct Trade buying model every year in response to producer feedback and impact analysis. It can be complicated. We must always push forward, driving prices to a level where they are legitimately enough to encourage and pay for maximum attention to detail at the farm level. You get what you pay for…that’s the mantra. If quality is expected, it must be awarded prices based on its real costs of production and its value as a Specialty coffee, not as dictated by a global commodities market that can drive prices up and down in an almost whimsical fashion. Escape from the New York “C” is the name of the game, and it is what most producers of high quality coffees really want.

Interestingly, as I write this the “C” is reaching its highest sustained level in the last decade. Some say this is due to increased activity among fund traders and speculators who have started gambling on commodity futures including coffee, wheat, and corn. Some say it is increasing consumption in Asia and Eastern Europe, combined with low productivity from many coffee farms due to minimal inputs and erratic weather patterns. Most likely it is all of the above. The good news for growers is that most signs point to sustained levels of higher market prices, which will drive prices upward across the board for both commercial and Specialty coffees.

I like a market like this one because it makes it much harder to get great coffee at a bargain basement price. Roasters and importers can really take advantage of producers in low market periods and get decent to good qualities for less than what they really should as measured by costs of production. It puts growers in a terrible position, with little bargaining power and with limited options. Once the market goes up a bit, the whole system gets healthier as the bargain shoppers get priced out of the marketplace and end up reducing their quality, exposing their purchasing models as opportunistic and inequitable in the face of a more balanced market scenario where producers have some chips to work with. The high-quality buyers find more competition for the top lots since growers tend to consolidate coffees and ship in bulk at the earliest opportunity in good markets. The good get better, the bad get worse, and the ugly find themselves with nowhere to turn.

Just as a point of interest, here is a look at the ICO’s current mission statement, as of 2007:

“…enabling government representatives to exchange views and coordinate coffee policies and priorities at regular high-level meetings; improving coffee quality through the Coffee Quality-Improvement Programs and specific projects; increasing world coffee consumption through innovative market development activities; initiating coffee development projects to improve quality; marketing encouraging a sustainable world coffee economy; working closely with the private sector through a 16-strong Private Sector Consultative Board, which tackles issues such as food safety; providing objective and comprehensive information on the world coffee market; and ensuring transparency in the coffee market through statistics.”

Sounds like some good strategy. No matter what the next 10 years look like for world coffee markets, I am certain that greater separation between “commercial” and “Specialty” coffees, in terms of both taste and value, is the key to success for the producing world. That’s why we’re so obsessive about quality in our selection process and so proactive with regard to paying growers prices that reflect what the coffee SHOULD be worth, regardless of what happens with the commodity markets.

Whew, that was a long one this week. If you would like more reading, check out the information on Tres Santos, our Direct Trade Offering from Colombia.

As always, find our Nods at:
http://www.intelligentsiacoffee.com/origin/offerings.

Good luck to all of us,

Geoff Watts
VP of Coffee
Intelligentsia Coffee & Tea

Further:

• Tres Santos
• Intelligentisa official site 

Popularity: 18% [?]

More from Geoff Watts, the roastmaster and green bean buyer for Intelligentsia Coffee & Tea, whose beans we brew with pride and love. Read more about Zirikana, Rwanda here.

Hola:

Just back to Chicago after a quick trip to Uganda and Kenya. My backyard is covered by a sheet of ice, reminding me that the equator is a long ways from here.

On the plane ride home I learned how to say “the president of the soy sauce factory is President Kang and the president of the bean-paste factory is President Kong” in Korean. Here goes: Kan-jang-kong-jang kong-jang-jang-eun kang kong-jang-jang-ee-go, dwen-jang-kong-jang kong-jang-jang-eun kong kong-jang-jang-ee-da. Now that is just plain great and a sure contender in the tongue-twisting Olympics.

The 5th Annual East African Fine Coffee Association Conference took place this past weekend. Kampala, Uganda hosted the conference this year, and it rotates annually among the member countries. Last year it was Ethiopia and in ‘09 it will move to Rwanda, to my great delight. (Kigali has started to feel like a second home after all the time I’ve spent there in the last four years.) The organization is an important one, for the simple reason that it is the first multinational institution focused on improving coffee quality and disseminating knowledge about Specialty Coffees in Africa.

Africa holds the future of Specialty Coffee, no doubt about it. Ethiopia, the birthplace of Arabica coffee, is home to a treasure trove of genetic diversity within the species. CIRAD, a French agro-science group, has been working at the Djimma research station (western Ethiopia, Kaffa area, probably the origin of the now famous Geisha coffee) to collect and begin to catalog as many different varieties as possible for future consideration. Who knows what might be discovered? No one has ever done a thorough enough investigation, and there is a great chance that some previously unheralded coffee types with unique and thrilling tastes and aromas will be identified. It will likely be decades before we see any real commercialization result from these efforts, but it is comforting to know that there is some effort underway to preserve these wild species that are disappearing at an alarming rate along with the forests.

In Latin America, rising land values that are a natural result of economic development and urbanization are making coffee farming less viable every year. Costa Rica is the best example of this as there are new shopping malls and residential communities now sitting on land that just three years ago was filled with coffee plants. Farmers in Panama are selling off parts of their coffee farms left and right to developers who are building condominiums and resorts. Labor is getting difficult to find as people emigrate to the cities and abroad.

These trends look to continue and accelerate, which bodes well for investment in coffee in other parts of the world. As the Specialty market keeps growing and becoming a larger and more meaningful percentage of overall coffee consumption, the efforts to find new coffee varieties and new sources for quality will get more intense.

Africa already grows a lot of Arabica coffee, but most of it goes into the commercial market because the quality is poor. It doesn’t need to be this way. There are just a few ingredients missing in the quality recipe, most importantly transportation infrastructure and access to technical assistance and capital resources… not to mention political stability. Very little can grow in the face of corrupt governments and ongoing civil unrest. Growers need more information about quality practices, they need sources of affordable credit, and they need reliable delivery systems in place. These things will improve and coffee may well become an important catalyst in East African economic development as both local businesses and governments recognize the potential that exists to transform their crippled coffee industries into major players in the increasingly attractive Specialty market.

I’m super-excited about what the future holds for African producers. It won’t be easy to reshape the coffee industries there, but necessity is a fairly reliable and time-tested driver of change. And reform there is most definitely necessary, more so each passing day.

We released it last week, and I am again asking you to read up on Zirikana, our Direct Trade offering from Rwanda. Truly an African success story.

Popularity: 22% [?]