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  • QA 039
    Question:
    What effect will rising production of organic coffee have on premia and, what is being done to reduce the cost of certification?
    Background:
    The number of countries supplying organic coffee is growing all the time, with some claiming to be able to supply quite large tonnages. Surely this must affect the premium, in which case reduction of the cost of certification is becoming ever more important? For example, through harmonization of different standards etc?
    Asked by:
    Grower - Peru
     
    Answer:

    If global availability of organic coffee were to increase substantially, outstripping the growth in demand, then inevitably the premium will shrink.      Furthermore as supply increases it is likely that future premium potential will increasingly depend on quality. Thus, when aspiring to 'go organic' growers should not lose sight of the growing role especially cup quality will play in the pricing process.

    Put differently, the more volumes grow and consumption of organic coffee becomes more widespread, the more likely it is that organic coffee generally may be treated more and more as a commodity, with shrinking premiums. We estimate there will always be a premium over conventional coffee but it will be a growing challenge for growers to keep costs down, quality up and premiums firm.

    Of course each situation is particular to each individual country and the supply-demand balance of its organic coffee. Some countries are already experiencing a premium reduction because availability exceeds the demand for their particular quality of organic coffee. Buyers use this as a negotiation tool to try and get producers to lower the premium. Fear of not getting any premium at all then makes producers 'accept' what is offered. But in other countries supply is still in balance with (or even below) demand, causing premiums to remain strong.

    For example, in Costa Rica or Guatemala premiums for specialty organic coffee are still at 'plus 30 cts/lb' or even 'plus 40 cts/lb', but particularly in Peru premiums have come down, from a typical 'plus 20 cts/lb' to 'plus 10 cts/lb' (or even lower).

    This suggests it is very much in the interest of growers to develop and support joint approaches towards certification issues to reduce costs. Clearly, simplification and harmonization of the entire inspection, accreditation and labelling process is extremely important. Harmonization brings more of a level playing field and, providing it also leads to a simplification of the process, should help to limit costs. However other factors affect costs upwards and the expectation is therefore that costs generally will not show any notable reduction.

    But, there is progress towards harmonization:

    The United States already has a single national label for both domestic and imported organic products: the USDA Organic Seal. Look for the National Organic Programme at www.ams.usda.gov/nop.

    Japan too has a single organic standard in place, the JAS - Japan Agricultural Standard for organic produce.

    The European Union's European Action Plan for Organic Food and Farming states the EU promotes the use of a generic European seal. One aim is to simplify accreditation and labelling procedures. Go to www.europa.eu.int and look for http//europa.eu/comm/agriculture/qual/organic/plan/index_en.html .

    Finally, as its title suggests, the International Task Force on Harmonization and Equivalence in Organic Agriculture, bringing together FAO, UNCTAD and IFOAM, deals with this topic internationally through its work on a Strategy for Harmonizing International Regulation of Organic Agriculture. Reports can be found at www.unctad.org - look for the Task Force under "Agriculture".

    Posted 23 August 2005

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