SOPORTE VITAL BASICO (SVB)

According to Kessy (1990), ICO governs the coffee world market. This is the main intergovernmental organisation for coffee that aims at bringing together producing and consuming countries to tackle the

challenges facing the world coffee industry through international cooperation. It makes a practical contribution to the world coffee economy and to improving standards of living in developing countries. ICO was established in 1953 when the first International Coffee Agreement (ICA) came into force in 1962 for a period of five years, and it has continued to operate under successive agreements negotiated since then. The 1962 Agreement was negotiated in New York at a Conference held under the auspices of the United Nations (UN). The successor agreements include the ICA of 1968 (and its two extensions), the International Coffee Agreement of 1976, 1983 (and its four extensions). Others are the 1994 Agreement (with its one extension) approved by the Council for a period of five years beginning October 1994, and the current Agreement of 2001. All agreements were negotiated at the headquarters of the ICO in London. The United Nations remains the only depository authority.

The role of ICO is to bring about international co-operation on coffee marketing and contribute to the stabilisation of the price of coffee. The function of ICO is to stabilise prices in order to satisfy all main stakeholders including producers, consumers and industries. Thus, ICO has been effective instrument for the regulation of the world coffee markets. Getting ahead to international coffee markets, URT and the World Bank (2004) propose an increased in farm productivity so as to off-set the secular declines in global coffee prices, production of superior quality of coffee, in order to take advantage of higher price premiums, and expanding into differentiated markets to take advantage of the corresponding price premiums including appellation, gourmet, or sustainable coffees (the latter includes organic, fair trade, and eco-friendly or shade coffee).

Ponte (2002) points out that the analysis of the coffee production; processing and marketing chain is of particular importance to understanding of the political economy of development for a number of reasons. For example, over 90 percent of the coffee production takes place in developing countries and larger consumption mainly takes place in developed or industrialised countries. In has beenargued that the production- consumption patter provides insight on North-South relations. Second, for most of the post WW II period, coffee has been the second most traded commodity after oil. Third, attempts to control the international coffee trade have been taking place since the beginning of the 20th_{century making coffee one of the first regulated} commodities. Fourth, a number of developing countries, even those with small share of global export market, rely on coffee for a high proportion of their export earnings. Coffee is the source of livelihood of millions of smallholders and farm workers worldwide. Fifth, producing countries historically treated coffee as a strategic and political commodity, therefore they have been either directly controlled domestic marketing and quality control operations or have strictly regulated them –at least until market liberalization took place in the 1980’s

As reported by various scholars including Ponte (2002), Muradian & Pelupessy (2005) and Bitzer, Francken and Glasbergen (2008), the governance structure of the global coffee chain has been transformed in the transition between the two regimes namely ICA regime (1962-890) and the post-ICA regime (1989-present). The two regimes have been selected for simplifying the analysis of the Global Coffee Chain (GCC). It is further argued that during the ICA regime, the coffee chain was not driven by any actor, nor was it possible it was controlled by the producing or consuming countries. Entry to farming and domestic trade was mediated by the respective governments while the international coffee trade was regulated by the common agreements. However, contrary to that according to Punte (2002), analysis of coffee value chain indicates that ICA regime exhibits many of characteristics of a buyer-driven chain meaning that consuming countries are controlling coffee chain.

Muradian & Pelupessy (2005) highlight that in the GCC analysis, the term coordination is applied instead of SCM. The term ‘coordination’ is often used for describing non-market relationships between firms in different segments or between external and internal parties in the chain. Therefore, in the context of this study the term coordination describes the exchange of non-market information, capabilities, and activities among actors of the commodity chain that are not linked through ownership. They likewise go into detail stating that ‘coordination’ is meant to ensure particular product (coffee) specifications, including performance, processes and logistics. Thus this study learnt that ‘coordination’ is likely to be a tool in coffee chains involving suppliers in developing countries and buyers in industrialised countries as it is the better way of ensuring reliable transactions and minimise risks, heterogeneous production conditions, technological advancement and stable financial systems that are common in developing countries. Thus from Ponte (2002), it is learnt that GCC approach provides useful tools for the analysis of commodity markets. It examines how key agents build, co-ordinate and control the linkages and flow of produce between producers and consumers and the roles played in this process by firms, financial service providers, and business services at large. Generally, it pays attention to the organisational aspects of the SCM it terms of the whole range of activities from primary production to final consumption and the linkages binding them. Inter-segment coordination in coffee chains according to Coe (2006) and Ponte (2002) may take a number of varieties of forms, but the most common that may be considered as possible simplified classifications include:

i. Market transactions - typical arm’s length transactions with low or missing coordination; low information exchange, mediated mainly by prices and standards attributes of products;

iii. Strong coordination – considerable, complex and specific information exchange, high monitoring and switching costs with likely mutual dependence ;

iv. Vertical integration – complex and very specific information (most of the time confidential ones). Standards, processes and logistics are controlled through acquisition of ownership in the chains.

Besides the usage of the term ‘coordination’ in Global Commodity Chain analysis, Bitzer et al. (2008) reports the use of the term ‘Governance’ along the coffee chain thereby shedding light on the transformative potential of partnerships in the global commodity chains. Governance in the context of GCC refers to the power of relationships between actors and the way financial, material and human resources are allocated along the coffee chain. Bitzer et al. (2008) find that the chain is governed if all the firms set and or enforce the parameters under which other actors in the chain operate. Thus governance guides four parameters that influence the entire supply namely, (i) what to produce (ii) How to produce it; (iii) When to produce it and (iv) How much to produce.

Coe (2006) has explored the documented examples of coordination and governance represented by the recent wave of market deregulation in various developing countries that have altered economic policy environment that farmers face. His assessment indicates that since the early 1990s, the role of the governments in directing the coffee market has declined in almost all coffee producing developing countries. For instance, in Malawi the National Coffee Association is represented through the Smallholder Coffee Farmers’ Trust, a privatised national farmers’ association representing a country’s minority small farmers. The Association has focused on developing a Rural Coffee Farmers Savings and Credit Organisation and improved extension services in order to market Mzuzu Coffee as a special coffee product. The second example has been cited from Costa Rica where FEDECOOP, the national Farmer Cooperative Association, has received training to use price risk hedging strategiesto protect investments involved in production of high quality Arabica coffee.

The third example is in Tanzania, where the Association of Kilimanjaro Speciality Coffee Growers through their participation in the coffee farmers’ association that consults the national TCB , became the first group to receive special permission from the government to bypass mandatory auction and export directly. Coe (2006) notes that some of the farmers of the Kilimanjaro Farmers Association managed to market their coffee at prices 66 percent higher than farmers who went through government auction. Another scenario whereby farmers secure market benefit through the coffee authority by instituting direct market controls is in Kenya. The Coffee Board of Kenya runs mandatory weekly auction and the licensing of marketers in the auction is

maintain the farmers’ advantage over marketing in the auction. Such examples are witnessed in Arabica producing countries such as Papua New Guinea and Cameroon. Forthe Coffee Authority of Philippines, farmers are claimed to be members of the task force of the Philippines National Coffee Development Board although they do not appear on the actual list of members of the Task Force. Only government ministries, coffee retailers, rosters and exporters are present. The structures of these authorities allow the government or private sector players to seek market benefits for themselves at the expense of farmers. Thus, in all these casesimproved extension services, access to credits and market training are secured through producers (farmers) participation in the coffee authority,which has led to the higher coffee quality output as well as higher coffee prices for all links in the coffee supply chain.

The presentation of made on coffee SCM above has revealed that coffee is an important commodity in the world’s economy. It also provides employment to many people worldwide. The assessment shows that final coffee processing is mainly taking place in developed countries not in developing countries. This indicates weak processing technology in producer states implying that coffee is sold in raw form. Apaert from the weak or absence of regional integration, coffee price remains one of the biggest challenges in the coffee supply chain. This poses a challenge to multiple actors along the supply chain. Therefore, there is a need to assess the institutions responsible for processing, governing, financing and managing coffee productionin order to establish reasons for this weakness on the coffee supply chain.