No 11

Low Prices are Damaging for the Entire Industry, Warns Japanese Trader from Key Coffee

November, 2013

Analysis

Low Prices are Damaging for the Entire Industry, Warns Japanese Trader from Key Coffee
Contrary to what one might think due to higher profit margins, coffee buyers and roasters do not look favorably at low prices of the bean, as they warn that they end up affecting the entire industry.

Given the low international coffee price, anyone would think that the most benefited are the large buyers and roasters of the bean, as their profit margins increase. But it is not so.

Kazuo Kawamata, marketing director for the Japanese trading company Key Coffee, warns that low coffee prices negatively affect the entire business.

“From the position of roasters, it is not a good idea for coffee prices to go down, because if prices fall abruptly, they can damage all parties involved in the business,” Kawamata said.

The marketing director of Key Coffee visited Colombia for the sixth edition of the Specialty Coffee International Fair, ExpoEspeciales 2013, where he talked about the coffee market in Japan.

“The most damaging thing for the business from the rosters’ point of view is that if the price falls, also lowers investment in the product quality, in the entire cultivation process, with the end result being the long-term worsening of overall conditions for the business,” Kawamata added.

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The Key Coffee representative explained that the three main variables that come into play in the Japanese coffee market are a stable supply, quality and sufficient quantity of the bean.

Key Coffee purchases between 50,000 and 60,000 bags per year, of which 15% are Colombian coffee purchases.

Kawamata also showed how complex it is to find a balance between production and price in the international market, because, while on one hand it is good news for Colombia that production increases, a natural consequence of this is that with an increased supply, the price will drop.

“If production is very high, the price will go down and thus market quality will also go down and this is not positive for the business,” he noted.

“Of course, it is very good that the amount of coffee to be purchased and production increase, but the problem lies in the lowering price, because this will cost an unbalance chain within the business economy,” he concludes.

With 7 million bags a year, Japan is the largest consumer of coffee in Asia and the second largest buyer of Colombian coffee in the world, after the United States.

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