This report uses the Global Value Chain (GVC) framework to examine Jamaica’s position in the global coffee industry and identify opportunities for local business to improve their position in the sector.
A defining characteristic of the Jamaican coffee industry is the high prices it receives on the export
market. Over the last decade, Jamaica continued to earn the highest unit prices for its exports—in 2015, the price importers paid for Jamaican coffee was US$31.03/kg, nearly seven times higher than the average global export price for Arabica beans (US$4.42/kg). The high price Jamaica receives is in some ways reflective of a second defining characteristic of the industry: its tiny production volume
and low productivity. The country generated less than 0.02% of international supply and accounted
for only 0.15% of green bean coffee trade by value in 2015. During the last decade, Jamaica’s annual production volume has steadily decreased from its 2007 apex of 15,000 MT to 5,000 MT in 2014.
Jamaica’s participation in the coffee GVC is in the production and initial processing stages of the chain. Power is concentrated in three centers: 1) Japanese trading companies; 2) the CIB; and 3) a small cluster of Jamaican firms that process the majority of the country’s JBM coffee. At the other
end of the spectrum are the producers, who have minimal organization and control. While these characteristics have in some ways defined the Jamaican industry for years, there has been recent industry evolution. The most significant of these features includes the following:
• Production is fragmented. The major processors and exporters have limited capabilities in the production segment of the chain, instead relying on approximately 7,000 farmers who generally work land smaller than four hectares. While there are exceptions, processors and farmers generally do not have formal contracts or strong relationships, with market transactions characterizing the relationship.
• The CIB has seen its role contract in recent years. Formerly an organization that had expansive extension capabilities as well as commercial operations, the CIB’s focus has narrowed to regulatory matters. While it still evaluates and exports beans from licensed dealers, it currently does not engage with farmers on a large scale and offers only limited technical assistance.
• Amidst consolidation, the major domestic companies remain focused on core activities. The industry has a high degree of integration in the downstream segments of the chain, with processors also acting as leading exporters. Together, Mavis Bank Coffee Factory, Wallenford and Coffee Traders control 80-90% of the export market for JBM beans. While all three of the major processors have varying downstream capabilities, each relies on the export of green beans as its primary source of revenue. At a country level, the export of green beans is more profitable in Jamaica than the trading of roasted coffee.
• Demand from Japanese buyers is weakening. Six Japanese trading companies are the primary buyers of Jamaican coffee. While the relationship between businesses in both countries has been durable, there has been recent turbulence, with the Japanese companies reducing their overall demand and demanding lower prices.
Aggregated, these characteristics lead to strengths for Jamaica as it pursues upgrading trajectories in the coffee GVC.
The advantages include:
1. Highest global unit value for coffee exports. Jamaica earns the highest unit price in the world for its coffee exports, a trend that has persisted for decades. The other top five nations for highest unit value for exports in 2015 all received at least 63% lower prices than Jamaica.
2. Favorable reputation for JBM coffee. The high unit price Jamaica earns on the export market is due largely to JBM’s high-quality reputation. The CIB’s long history of monitoring for quality along with a favorable climate and soil conditions led specialty consumers to see JBM coffee as a luxury product.
3. Strong regulatory system to ensure quality. The CIB has been instrumental in Jamaica maintaining its reputation for quality. Its exacting standards and its long history have
afforded Jamaica a prominent niche in the specialty market and are prominent assets for the domestic industry.
4. Integrated production and established processors and exporters. Jamaican coffee is
relatively integrated, with several processors also acting as traders and some having their own production sites. Many of these actors have long histories in the coffee industry and
are expanding activities across value chain.
Despite these strengths, there are multiple challenges, some of which have become particularly pronounced in recent years. The most prominent include:
1. Reliance on single export market. Dependence on the Japanese market subjects Jamaican actors to shocks on the demand side. The result, for example, of Japan’s reluctance
to purchase coffee in 2017 is that farmers might see the prices they receive dropped from US$93 per 60-pound box to US$46.
2. Low productivity. Coffee production and yields are both falling dramatically in Jamaica, with aging trees and the lack of tree maintenance both major contributing factors. Many farmers do not have access to training or finance to afford the necessary inputs to modernize their farm.
3. High production costs. The low productivity is further reinforced by high costs of production. Due to the steep terrain associated with the Blue Mountains, only limited mechanization is possibly, and JBM is mostly harvested by hand.
4. Poor infrastructure in coffee production areas. The Blue Mountain region features dramatic elevation gains, with roads only providing limited access. This issue is further complicated by periodic hurricanes that wash out roads, which sometimes forces farms to be abandoned after producers cannot access the property for extended periods of time.
5. Limited coordination among stakeholders, including on extension services. The CIB has played an important historical role as the preeminent coordinating actor in the chain. However, as the CIB scaled back its focus to concentrate almost exclusively on regulation and monitoring, other actors have not responded by expanding their activities. The issue is especially pronounced with the provision of extension services. Following the
privatization of the commercial arm of the CIB, funding was reduced, reducing the board’s ability to offer training and services to farmers. As a result, services are limited—large
processors have sporadically offered technical assistance to growers, but these efforts have not persisted over time because of concerns growers will sell to other processors.
6. Inability of many producers to sell into supply chains of major coffee retailers. The global coffee industry places a premium on third-party verifications of sustainability and environmental considerations. Many actors in Jamaica either are not in compliance with industry standards or cannot generate documents to prove they are. Furthermore, large aggregators and processors do not differentiate their supply, limiting their ability to sell into the supply chain of lead firms.
7. Insufficient marketing of Jamaican coffee. Jamaica has relied on Japanese demand for many years and has not invested in extensive marketing efforts to build the brand. Campaigns to expand export partnerships in the United States, Europe, and other potential markets are limited, further hindering the ability to diversify end markets. Additionally, joint efforts with other Jamaican industries to capitalize on the country brand are also underdeveloped, reducing opportunities to build international awareness. Other coffee-exporting countries have utilized different strategies for overcoming similar impediments. Colombia’s Colombia Coffee Growers Federation (FNC) provides a strong example of a farmer-led organization acting as a representative body and helping drive process upgrading. The FNC spearheads research and extension services through Cenicafé, providing farmers with access to best practices while also working with local institutions to create appropriate financial support mechanisms.
Costa Rica’s ICAFE has assisted product upgrading into specialty coffee through a variety of process
upgrades. ICAFE instituted a Quality Improvement Agreement with coffee-producing regions and
disseminated information about “best practices” to all stakeholders while also working with the government to create minimum floors for coffee prices through the National Fund for Coffee Stabilization Fund. This support allowed Costa Rica to expand its capacity in sustainable, organic and single-origin product lines.
There are other lessons for marketing and diversification. The FNC retains control of the Juan Valdez brand, thereby providing farmers with more direct access to market signals communicated by foreign buyers. In more recent years, the FNC has sought to expand its retail presence and allow consumers to purchase Colombian coffee. It has also assisted efforts to support chain upgrading by
facilitating the growth of coffee tourism in some regions of the country. ICAFE, meanwhile, targeted
foreign tourists for increasing demand for Costa Rican coffee by training local baristas in domestic
coffee shops. This attentiveness to the Costa Rican brand has allowed companies such as Café Britt to expand their retail presence in regional markets.
Jamaica’s potential upgrading can employ similar strategies while addressing the country’s location-
specific challenges. Specifically, Jamaica can attempt to implement the following trajectories:
1. Short-term process upgrading to improve both the productivity of Jamaican Blue Mountain coffee and expand planting of trees. The inefficient agricultural practices that are impairing productivity in Jamaica mirror broader global challenges.
Significant attention to tree rejuvenation and the implementation of GAPs is necessary for the Jamaican industry to continue to thrive. Colombia’s tree rehabilitation effort, facilitated by its farmer-led association, provides an example of how to help smallholders replant trees while also spreading disease-resistant varieties.
2. Short-to-medium term functional upgrading to improve branding and
marketing efforts with ultimate goal of end market diversification. Known for high quality coffee, Jamaican coffee exports are highly concentrated; end market diversification is needed for continued competitiveness. JBM coffee should be the focus for branding efforts since JBM faces an uncompetitive production environment. To aid end market diversification, improved branding and marketing efforts are required. Strategies should include steps such as organizing trade missions for buyers to the Blue Mountain region, hosting of Cup of Excellence competitions and developing a “compelling story” to engage socially and environmentally conscious buyers. Those compelling stories should include profiles of coffee growers in Jamaica.
3. Long-term functional upgrading to move into new segments of the value chain, primarily retail operations. Once Jamaica has increased production and has sufficient supplies, it can move into new segments of the value chain with higher economic returns, including retail. Coffee Traders and Café Blue have a limited presence in retail, but there has not been a widespread country move in this direction.
4. Transversal efforts around improving the institutionalization of the industry and investing in modern infrastructure. To move the domestic industry forward, Jamaican
stakeholders will have to address underlying systematic issues that threaten the sector’s competitiveness.
• Institutionalization: Jamaican coffee has a strong foundation in the CIB. However, the board serves primarily as a regulatory body and has limited role in extension services or branding. In the absence of organized outreach to farmers, sector-wide efforts are undertaken by individual processors to limited degrees and successes. Stronger coordination of all support roles, including knowledge transfer of best practices, input provisions and branding and marketing at the country level is needed to help better position the industry. Institutionalization should involve all value chain actors, including farmers, processors, and exporters as well as provide for a clear strategy for the nation.
• Infrastructure: The Blue Mountain terrain is difficult to traverse with sloping mountain sides and frequent weather issues. As a result, many growers face difficulty moving
product for processing or export. Some farms are no longer active because it is too difficult to access them on the existing roads.
AcknowledgementsThe Duke University Global Value Chains Center would like to thank all of the interviewees, who gave generously of their time and expertise, as well as Renee Penco of the Organization of American States (OAS) for her extensive support. The Duke University Global Value Chain Center undertakes client-sponsored research that addresses economic and social development issues for governments, foundations and international organizations. We do this principally by utilizing the global value chain (GVC) framework, created by Founding Director Gary Gereffi, and supplemented by other analytical tools. As a university-based research center, we address clients’ real-world questions with transparency and rigor.