By Aparna Datta

Hope floats. As tea and coffee producers look to escape the commodity box, the prospects of organic production appear ever more attractive. Add stringent food safety norms in importing countries, the red flag of pesticide residues always on stand-by. Blend in the concept of LOHAS – Lifestyles of Health and Sustainability. The outcome? Going organic seems to be an obvious route for progressive growers.

There’s just one issue, though. The market is stuck at 2%. Notwithstanding years of advocacy by organizations such as IFOAM (International Federation of Organic Agriculture Movements) or FAO (Food & Agriculture Organization), much buyer-seller interaction at BioFach events and several international conferences and seminars on the subject, the bottom line is that the consumer market for organic produce is still estimated at an abysmal 2% of total grocery sales.

Globally, tea and coffee are currently in a state of over-production, and, consequently, over-supply. Further, as acknowledged in the recent World Bank study titled Coffee Markets – New Paradigms in Global Supply and Demand, “A consequence of the decline in coffee prices has been a decline in the share of the final retail price that is received by producing countries…Many countries perceive the commodity trading system to be increasingly onerous and partly responsible for the loss of share of market value. However, a group of producers and coffee firms are pursuing strategies that are independent of commodity pricing and the exchanges. Many of these alternatives include some differentiation of the coffee, usually by either quality or cultivation processes.”

Product differentiation
The study indicates that “the differentiated product market is growing the fastest” but what complicates the scenario is the range of differentiation methods: geographic appellations, gourmet or specialty, organic, fair trade, eco-friendly or shade-grown and other certifications such as Kosher and Utz Kapeh. In the process, the virtues of organic production – first projected through the Demeter label in 1927 – seem to be getting submerged in a deluge of differentiation themes, each as sharp as the other in scoring points with consumers. In recent years, due to the ‘crisis’ situation affecting small growers of tea and coffee, ‘fair trade’ has become a powerful motivator, to the extent that IFOAM found it necessary to underscore the holistic principles that infuse both concepts, and to conclude that cooperation between the two should be intensified.

Yet, in terms of application, the concepts appear to diverge. ‘Fair trade’ in tea and coffee is administered via labels such as Max Havelaar, Fairtrade Labelling Organization (FLO), Café Direct and Transfair International, owned and managed by non-profits in Europe and North America. It is designed for small growers and cooperatives, assisting them in gaining access to markets and buyers willing to pay a ‘fair’ price, and ensures that benefits flow back to growers. Large coffee estates in India, even with good social welfare practices, are ineligible for such labels, but large tea estates are. ‘Organic’ produce, however, is recognized through third-party verification of farms operated through business firms with related expertise, applicable to large estates, as well as small growers through group certifications.

Organic Asia
Such knots and overlaps in product appeals leave the field wide open, and consumers confused. It creates a dilemma, especially in the Asian region that accommodates farm systems in tea and coffee ranging from large plantations of several hundred acres to small holdings of ¼ acre. In fact, Asia is potentially the world’s most extensive and valuable source for organic tea and coffee. The Stassen Group of Sri Lanka set the ball rolling in 1987 when its Idulgasinna estate located in the Uva region achieved distinction as the world’s first certified organic tea garden. Today, around 20 percent of Darjeeling tea is under organic/biodynamic cultivation and the tea estates of India and Sri Lanka already supply much of the world’s certified organic tea. Japan produces substantial quantities of organic green tea while Vietnam and China have on-going conversion programs in tea. Organic coffee from Indonesia and Papua New Guinea has long graced the catalogues of roaster-retailers in the developed world, while organic coffee from India holds great promise.

The ability and capacity of tea and coffee producers in Asia to undertake organic cultivation is not in question – rather, the issue is that of finding markets for the produce. Across Asia, organic tea and coffee are produced primarily for export markets in Europe, North America and Japan where certification is crucial.

Organic certification is evidently the most evolved as far as differentiation platforms go, which makes ‘organic’ highly valued both by producers and buyers, as ‘traceability’ is intrinsic to the process. Codex Alimentarius, with its organic chapter, defines the common international framework for governments; production processes and mechanisms for farm inspection and evaluation are well established. Gunnar Rundgren, President of IFOAM, states that the Organic Certification Directory 2003, published by Grolink, lists 364 bodies as offering certification services. However, the spread is uneven: 290 of these are located in the European Union, 106 in US, Canada, Japan and Brazil. 56 of the listed certification organizations also operate outside their home countries – most of them are based in developed countries and offer their services to developing countries, with only a handful busy on most continents. Most of Asia and Africa still lack local service-providers; Asia has 83 operators, but 65 of these are in Japan.

The certification conundrum
This has led to a state where producers are currently obliged to go in for multiple certifications because buyers in different continents have different brand preferences. Certification is expensive relative to the economies and currencies of developing countries; these include direct costs for inspection fees and farm infrastructure, to the extent that the sheer “organic bureaucracy”, as Rainer Bächi of IMO put it, is threatening to inhibit organic conversion.

The varying national standards for organic foods in importing countries, and the recently mandated FDA bio-terrorism regulations, specific to the US market, are further worries for exporters. Developing national standards for organic products in producing countries is yet another challenge where much depends on government action. Countries in Asia with fully developed standards and regulations include India, Japan, Philippines, Korea, Taiwan and Thailand. Vietnam is in the process of framing its policy and organic producers in Vietnam admit experiencing difficulty in obtaining internationally accepted certifications; until the policy documentation is in place, organic conversion will obviously be slow.

Seen in conjunction with ISO, HACCP, fair trade and eco-labels, certification could turn hydra-headed if some minimum equivalency norms are not applied worldwide. And the organic movement could forever be locked into a chicken and egg situation: without certification there’s no market access; without consumer markets there’s little motivation to turn organic.

Many analysts now advise producers to develop a clear understanding of the pros and cons before taking the organic road. Mark-ups that once ruled at 100% on the price of standard grades have come down to between 10-30%, with the International Trade Center (ITC) saying that 15% is the realistic maximum that should be expected (F.O. Licht/ICO April 2004). The authors of the World Bank study sound a note of caution when they state: “As more of these (differentiated) coffees come onto the market the ensuing saturation could significantly diminish their prices. These markets are still small and even modest changes in supply and demand can impact prices.”

Mainstreaming organic
At the 7th IFOAM International Conference on Organic Trade held in Bangkok in November 2003, the core theme was Mainstreaming Organic Trade – New Frontiers, Opportunities and Responsibilities. Sheldon Weinberg, of Weinberg & Associates, in his presentation on the US organic market identified the key challenges as Price: “I would be likely to eat organic more often if… prices were lower”; Accessibility: “could buy more in supermarkets, could buy broader range of products”; Quality: “if they tasted better, quality was higher”. Weinberg believes that price reductions can come about through economies of scale, efficiencies in the system and alternate distribution models – not by reducing price to farmers. The focus should be on selling the organic value proposition. Investments need to be made in agricultural research, health and nutrition research, communication of organic benefits, farm infrastructure and new alignments and alliances.

For organic tea and coffee to move beyond the niche much will depend on the interest and support of branded tea marketers and large coffee roasters in the consuming countries. Amarjit Sahota of Organic Monitor, UK feels that “education is required to inform consumers of organic and non-organic production, more specifically the benefits in terms of the environment, soil fertility and better nutrition.”

The softly, softly approach seems to be the way forward for organic tea and coffee, with trade partnerships and consumer engagement being the key strategies. Starbucks is now promoting an organic blend and alongside has a stated green coffee procurement policy that rewards producers for meeting standards; Neumann, Kraft Foods and Nestle are reportedly interested in developing organic brands, so organic coffee may in time turn into a high visibility, fast moving item. The role of green advocates such as Taylor Maid Farms, Raven’s Brew Coffee and Elan Organics remains valuable, as do the activities of groups like Green Treks that have innovative consumer education programs. Guidance on ethical sourcing from the European Coffee Federation and SCAE are also likely to influence purchases. Certified organic Darjeeling tea estates such as Ambootia and Makaibari and South Indian estates such as Korakundah, Thiashola and Oothu already have direct arrangements with buyers and this trend is likely to expand as quality and availability increases.

At the policy level, Asian countries could perhaps take the high ground, in association with agencies such as IFOAM, FAO and the Common Fund for Commodities, by evolving a pan-Asian standard for organic foods operated through inter-governmental and regional trade agreements. This could be a lever for gaining bargaining power with importing countries, and generate more opportunities for organic tea and coffee producers. A true paradigm shift in organic trade could yet be on the horizon.

© Aparna Datta, 2004

Resources:
IFOAM: ‘The World of Organic Agriculture – Statistics and Emerging Trends 2004’ may be downloaded from www.ifoam.org
Sheldon Weinberg: shel@sheldonweinberg.com
www.organicmonitor.com

Published in Tea & Coffee Asia magazine, 3rd Quarter 2004