THE SOCIO ECONOMIC AND SPATIAL DYNAMICS OF THE JAMAICAN COFFEE INDUSTRY By MARIO ANTONIO MIGHTY A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY UNIVERSITY OF FLORIDA 2014
2014 Mario Mighty
To my parents, siblings and all my family and friends that have supported me through this amazing graduate school experience.
4 ACKNOWLEDGMENTS This dissertation would not be possible without the help and assistance of so many people I first thank my Lord, and Savior Jesus Christ. Not only have I completed this dissertation in a timely manner but I have experienced tremendous spiritual growth throughout my time in graduate school. I am grateful to my parents, Phillip and Claudette Mighty as well as my siblings P atrice and J r me Mighty for their constant love and support. I thank the family I have obtained in the years away from my home country the members of Graduate Christian Fellowship and the Southwest United Methodist Church. Academically, this dissertatio n would have been of lesser quality if it had not been for the guidance of my dissertation c ommittee Dr. Nigel Smith (chair), Dr. Timothy Fik, Dr. Eric Keys and Dr. Pilar Useche ; as well as colleagues in the Department of Geography who provided valuable perspectives on my work Special thanks to the members of the Coffee Industry Board of Jamaica, especially Mr. Gusland McCook and Mr. Dave Gordon for their willingness to teach me all about the inner workings of the Jamaican coffee industry and assist me i n my data collection over multiple fieldwork seasons. I also thank the Mona GeoInformatics Institute for their provision of GIS data for my research. The information gathered during the summer 2012 and 2013 field seasons could not have been collected witho ut the valuable assistance from the members of staff at the Coffee Industry Board of Jamaica as well as every coffee stakeholder that generously gave of their time to participate in this research process. My heartfelt thanks go out to you all.
5 Finally, thi s research would have been more limited without fieldwork funding through the Latin American Studies Field Research Grant and the Graduate School Doctoral Research Travel Award both provided through the University of Florida.
6 TABLE OF CONTENTS page ACKNOWLEDGMENTS ................................ ................................ ................................ .. 4 LIST OF TABLES ................................ ................................ ................................ ............ 9 LIST OF FIGURE S ................................ ................................ ................................ ........ 10 LIST OF ABBREVIATIONS ................................ ................................ ........................... 12 ABSTRACT ................................ ................................ ................................ ................... 14 CHAPTER 1 INTRODUCTION ................................ ................................ ................................ .... 16 Overvi ew of Research Papers ................................ ................................ ................ 17 Intellectual Merit and Broader Impacts of the Research ................................ ......... 18 Competitive Advantage vs. Comparative Advantage ................................ .............. 19 A Brief History of the Jamaican Coffee Industry ................................ ..................... 20 2 AN EXAMINATION OF THE JAMAICAN COFFEE INDUSTRY USING POR ................................ ................................ ....... 25 Overview ................................ ................................ ................................ ................. 25 Study Area ................................ ................................ ................................ .............. 27 es Model Background and Applications in the Literature ......... 29 An Overview of the Global Coffee Market ................................ ............................... 35 The Specialty Coffee Market ................................ ................................ ............ 36 The Coffee Value Chain ................................ ................................ ................... 37 Data S ources ................................ ................................ ................................ .......... 39 PFFM Analysis of the JCI ................................ ................................ ....................... 40 Bargaining Power of Suppliers ................................ ................................ ......... 41 Farmers ................................ ................................ ................................ ...... 41 Processor and roaste rs ................................ ................................ .............. 43 Dealers and exporters ................................ ................................ ................ 44 Bargaining Power of Buyers ................................ ................................ ............. 45 Farmers ................................ ................................ ................................ ...... 45 Processors ................................ ................................ ................................ 45 Local roasters and exporters ................................ ................................ ...... 45 Threat of New Entrants ................................ ................................ ..................... 46 Farmers ................................ ................................ ................................ ...... 46 Processors ................................ ................................ ................................ 47 Roasters ................................ ................................ ................................ ..... 47 Dealers and exporters ................................ ................................ ................ 47 Threat of substitutes ................................ ................................ .................. 48
7 Rivalry among Competitors/Stakeholders ................................ ........................ 48 Farmers ................................ ................................ ................................ ...... 48 Processors ................................ ................................ ................................ 49 Roasters ................................ ................................ ................................ ..... 49 Dealers and exporter s ................................ ................................ ................ 49 The Jamaican Coffee Industry in the Big Picture: Comparison to the Global Coffee Market ................................ ................................ ................................ ...... 50 Bargaining Power of Suppliers ................................ ................................ ......... 51 Bargaining Power of Buyers ................................ ................................ ............. 53 Threat of New Entrants ................................ ................................ ..................... 55 Threat of Substitutes ................................ ................................ ........................ 57 Rivalry among Existing Competitors ................................ ................................ 58 Considerations for Improving the Competitive Advantage of the JCI ...................... 59 Conclusions and Recommendations ................................ ................................ ...... 63 3 THE CHALLENGES AND RESPONSES OF STAKEHOLDERS IN THE JAMAICAN COFFEE INDUSTRY ................................ ................................ ........... 66 Overview ................................ ................................ ................................ ................. 66 Challenges in Specia lty Agriculture ................................ ................................ ........ 68 Data and Methods ................................ ................................ ................................ .. 71 Study Area ................................ ................................ ................................ ........ 71 Research Design ................................ ................................ .............................. 74 Research Ins trument ................................ ................................ ........................ 75 Data Collection ................................ ................................ ................................ 76 Data Analysis ................................ ................................ ................................ ... 77 Presentation o f Findings ................................ ................................ ......................... 80 Farmers ................................ ................................ ................................ ............ 84 Processors ................................ ................................ ................................ ....... 86 Dealers ................................ ................................ ................................ ............. 87 Regulators ................................ ................................ ................................ ........ 88 Discussion of Findings ................................ ................................ ............................ 90 Farmers ................................ ................................ ................................ ............ 90 Processors ................................ ................................ ................................ ....... 92 Dealers ................................ ................................ ................................ ............. 93 Regulators ................................ ................................ ................................ ........ 94 Going Forward Conclusions and Recommendations ................................ ........... 95 At the Intra national Level ................................ ................................ ................. 97 At the International Level ................................ ................................ .................. 98 4 SITE SUITABILITY AND THE ANALYTIC HIERARCHY PROCESS: HOW GIS ANALYSIS CAN IMPROVE THE COMPETITIVE ADVANTAGE OF THE JAMAICAN COFFEE INDUSTRY ................................ ................................ ......... 100 Overview ................................ ................................ ................................ ............... 100 The Study Area ................................ ................................ ................................ ..... 101 Review of the Literature ................................ ................................ ........................ 102
8 GIS Analysis and Decision Making ................................ ................................ 103 Competitive Advantage and Technology ................................ ........................ 105 Methodology and Data Analysis ................................ ................................ ........... 107 The Data ................................ ................................ ................................ ......... 111 Pairwise Comparison Matrix and Final Weighting ................................ .......... 112 Suitability Criteria Data Reclassification ................................ ......................... 1 13 Exclusion Mask ................................ ................................ .............................. 116 Putting It All Together The Weighted Suitability Model ................................ 117 Discussion of AHP Suitability Model Results ................................ ........................ 119 Model Results ................................ ................................ ................................ 119 Applying the Model to the Jamaican Coffee Industry ................................ ..... 121 Final Words ................................ ................................ ................................ ........... 125 5 CONCLUSIONS ................................ ................................ ................................ ... 126 Summary of Fin dings ................................ ................................ ............................ 126 Avenues for Future Research ................................ ................................ ............... 129 Statistical Time Series Analysis of Coffee Production and Prices in Jamaica 130 Site Suitability Analysis for Other Areas in the Caribbean .............................. 130 Comparing the Development of the Coffee and Tourism Sectors in Jamaica and Hawaii ................................ ................................ ................................ .. 130 Conducting a Land Use Land Cover Change (LULCC) Analysis of an Area/Sector of Jamaica. ................................ ................................ .............. 131 Developing an Updated Land Use Map of Jamaica ................................ ....... 131 APPENDIX A SAMPLE INTERVIEW FORM ................................ ................................ ............... 132 B DETAILED QUALITATIVE ANALYSIS OF INTERVIEWS ................................ .... 134 LIST OF REFERENCES ................................ ................................ ............................. 138 BI OGRAPHICAL SKETCH ................................ ................................ .......................... 147
9 LIST OF TABLES Table page 3 1 Categories and common themes of the challenges and responses of all JCI stakeholders derived from the qualitative analysis steps. ................................ ... 79 4 1 Final weight calculation for suitability layers. ................................ .................... 113 4 2 Suitability rankings according to Carr and Zwick (2005) ................................ ... 113 B 1 Categories of challenges and responses of all JCI stakeholders with associated themes and topics ................................ ................................ .......... 134
10 LIST OF FIGURES Figure page 2 1 Major coffee growing regions in Jamaica. The Jamaica Blue Mountain (JBM) coffee region is highlighted in blue and the Non Blue Mountain (NBM) coffee regions are shown in brown. ................................ ................................ ............... 28 2 2 The five competitive forces that determine industr Five Forces Model (PFFM) (Porter 2008). ................................ .......................... 31 2 3 Porter Five Forces Model of the Caf do Cerrado re gion in Brazil (Neves, Kalaki and Trombin (2011). ................................ ................................ ................ 33 2 4 A basic coffee value chain. ................................ ................................ ................. 38 2 5 PFFM summarizing the forces within the Jamaican coffee industry ................... 41 2 6 PFFM summarizing the position of the JCI in relation to the international coffee market ................................ ................................ ................................ ...... 50 2 7 Detailed PFFM summarizing the Jamaican coffee industry at the local and international level. ................................ ................................ ............................... 60 3 1 Major coffee growing regions in Jamaica. The Jamaica Blue Mountain (JBM) coffee region is highlighted in blue and the Non Blue Mountain (NBM) coffee regio ns are shown in brown. ................................ ................................ ............... 71 3 2 Coffee production in Jamaica between 1982 and 2013. The rise in the production of JBM coffee accompa nied the decline in NBM coffee. ................... 72 3 3 Prices paid to coffee farmers in the JBM and NBM (lowland) regions for a standard 60 lb. box of coffee from 1982 to 2012 (in 2012 US dollars). ............... 73 3 4 Locations where field interviews took place in the 2012 and 2013 summer field seasons. ................................ ................................ ................................ ...... 74 3 5 Distribution of field interviews by parish. ................................ ............................. 82 3 6 Semi structured interview by format. ................................ ................................ .. 82 3 7 Involvem ent of interviewees in the Jamaican Coffee Industry. ........................... 83 3 8 Coffee farmer interviewees by farm size and production region. ........................ 84 3 9 Top 10 interview topics raised by coffee farmers in the JCI. .............................. 85 3 10 Top 10 interview topics raised by coffee processors in the JCI .......................... 86
11 3 11 Top 10 interview topics raised by coffee dealers in the JCI ................................ 87 3 12 Top 10 interview topics r aised by representatives from the Coffee Industry Board of Jamaica ................................ ................................ ................................ 89 4 1 Major coffee growing regions in Jamaica. The Jamaica Blu e Mountain (JBM) coffee region is highlighted in blue and the Non Blue Mountain (NBM) coffee regions are shown in brown. ................................ ................................ ............. 102 4 2 Decision hierarchy for coffee suitability analysis. ................................ .............. 112 4 3 Jamaica soils dataset before and after reclassification. Darker areas are more suitable. ................................ ................................ ................................ ... 114 4 4 Elevation dataset before and after reclassification. Greener areas are more suitable, redder areas are less suitable. ................................ ........................... 115 4 5 Euclidean distance raster created from the roads layer. Darker red areas are further away from the major r oads. ................................ ................................ ... 116 4 6 Exclusion mask for suitability analysis. Areas in black were excluded from the final analysis. ................................ ................................ ................................ .... 117 4 7 AHP Suitability Model the weights shown in Table 1 were integrated with each of the reclassified criteria layers and the resulting layer was combined wi th the exclusion mask to give the final suitability layer. ................................ 118 4 8 Final coffee suitability layer. Greener areas are more suitabl e for coffee production while redder areas are less suitable for coffee production. Areas excluded from analysis are shown in black. ................................ ..................... 119 4 9 Coffee farmer location across the island of Jamaica compared with suitable areas. Bigger circles indicated a larger number of farmers. The JBM coffee region is highlighted by the blue boundary. ................................ ...................... 120 4 10 Coffee farmer location in the JBM coffee region compared with suitable areas. The JBM coffee area is delineated by the blue line and the red crosses indicate areas located in excluded areas. ................................ ........... 121 4 11 Map of coffee region popularly used within the JCI. ................................ ......... 122
12 LIST OF ABBREVIATIONS AHP Analytic hierarchical process CA Competitive advantage CoA CI Comparative advantage Consistency index CIB Coffee Industry Board of Jamaica CR FAO FLO Consistency ratio Food and Agricultural Organization Fairtrade Labelling Organization International GDP Gross Domestic Product GIS Geographic Information Systems GIS MCDM ICO IFOAM GIS multi criteria decision making International Coffee Organization International Federation of Organic Agriculture Movements IMF International Monetary Fund JBM Jamaica Blue Mountain JCI Jamaican coffee industry KMA Kingston and St. Andrew Metropolitan Area MBCF Mavis Bank Coffee Factory MCDA Multi criteria decision analysis MCDM Multi criteria decision making NBM Non Blue Mountain PFFM SCAA SIDS Specialty Coffee Association of the Americas Small Island Developing States
13 STATIN Statistical Institute of Jamaica UK WCC United Kingdom Wallenford Coffee Company
14 Abstract of Dissertation Presented to the Graduate School of the University of Florida in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy THE SOCIO ECONOMIC AND SPATIAL DYNAMICS OF THE JAMAICAN COFFEE INDUSTRY By Mario Mighty May 2014 Chair: Nigel Smith Major: Geography The purpose of this dissertation is to assist the Jamaican coffee industry (JCI) to be more competitive on the global specialty coffee market. This research assesses the strengths and weaknesses of the JCI, explores underlying issues faced by stake holders and develops new ways of integrating spatial analysis in order to increase production efficiency. Linked through the framework of competitive advantage (CA) developed by Michael Porter this work focuses on increasing the bargaining power of the JCI. An established premium coffee, its CA is b e ing eroded by the high costs of production relative to many of its competitors and increased competition in the specialty coffee market. The results of this dissertation should aid stakeholders within the JCI to make smarter, more efficient business decisions A mixed methods approach is used to answer three research questions. Primary information was obtained through semi structured interviews with industry stakeholders while secondary information on the local and international coffee industry was gathered th rough archival research, and analysis of spatial and non spatial datasets from a number of sources
15 P was used to assess the CA of the JCI. It was uncovered that the increased influence of international coffee compani es in l ocal production systems and declining farmer productivity significantly influenced supplier bargaining power And although the JCI is leverag ing its experience and brand status to retain its CA and expand into emerging markets internal challenges hamper t his growth. It was hypo thesized that rising and maintenance costs were the major challenge to the CA of the JCI. This was found to be true primarily among farmers but less so among other groups Unequal resource distribution and increasing marketing costs were also revealed to be fundamental determinants of bargaining power. In order to be an efficient producer and innovative marketer, employing labor saving technology such as geospatial analysis is essential. This research present s a GIS site suitability model for coffee in Jamaica identifies the optimal locations for coffee production in the island. The output enables stakeholders to assess the viability of currently cultivated lands and provides a guide for short, medium and long term decision making
16 CHAPTER 1 INTRODUCTION This research presented in this dissertation was born out of the natural progression of my interests in geography. It started with agriculture then broadened to include economic development and globalization and culminated with the desire to incorporate the power of Geographic Information Systems (GIS) in my own work. This dissertation builds on my undergraduate thesis on the citrus industry in the parish of St. Catherine oriented Jamaican banana industry. The undergraduate research focused on the impacts of globalization on the viability of the Jamaican citrus industry. Throughout that research project, the complex natu re of human environment interactions was brought to the fore. The project also unearthed the challenge of mitigating the spread of the crippling Citrus Tristeza Virus while competing on the global citrus market. The challenge of dependence on international trade and the human environment dynamic was again brought to the fore critical importance of crop diversification in risk mitigation and the close relationship between t he amount of available capital and the types of adaptive strategies stakeholders pursued in the domestic banana market. As I continued to explore the small island globalization dynamic, my research took me to the intriguing case of the Jamaican coffee indu stry. Though small, Jamaican coffee commanded a stronger market presence than the citrus and banana industries. However, the Jamaican coffee industry (JCI) has seen a decline in the number of farmers growing coffee because of increasing production costs an d a slowdown in exports due to increased global competition and an economic recession in key markets.
17 This led me to ask: how can this research help the Jamaican coffee industry regain its competitiveness? Producers, processors and exporters in the sector have had to evaluate current operations and decide how best to move forward. The need for solutions drove the research questions explored in the papers that follow with the aim of helping to develop strategies for effective competition on the global coffee market. Overview of Research Papers This dissertation seeks to help the JCI regain some of the competitive advantage (CA) it has lost over the last few years. The first paper presents a structural analysis of Model (PFFM). The major goal of this paper is to identify the primary strengths and weaknesses of the JCI from the intra national and international point of view and suggest mechanisms that can strengthen industry dynamics for better global competition. Th e second paper is a qualitative study of the major challenges coffee producers, processors and exporters face within Jamaica. This in depth exploration also highlights the ways in which stakeholders are responding to these challenges. Based on the findings of this paper, recommendations are made on how to best secure the future of the local industry. The third and final paper presents a GIS modeling of the most suitable areas for coffee production in Jamaica (Mighty 2014, under review). By integrating GIS m ulti criteria decision making as well as the analytic hierarchy process, this paper aims to provide objective location decision for more efficient production of coffee. Altogether, this mixed methods examination of the JCI has both put me on the path to de vising innovative strategies for industry stakeholders and raised several questions which I intend to pursue beyond the dissertation.
18 Intellectual Merit and Broader Impacts of the Research Much of the literature on CA has been focused on firms outside of a griculture and even within this sector, the emphasis has been on the consumer end of the value chain. It is it is hoped that this dissertation will make a significant contribution to the fields of agricultural and economic geography as well as the field of GIS which is grounded in the field of geography. By undertaking a PFFM analysis of the JCI, this research will continue to build upon the literature on the impacts of globalization on small scale agriculture by uncovering just how much free trade influenc es operations at the local scale. This in turn should facilitate effective agricultural policy development, especially for specialty products such as JBM coffee. By identifying the challenges that drive decision making among coffee stakeholders, both acade mic and non academic stakeholders can generate more effective policies to support the coffee industry and promote diversification where applicable. The limited availability of spatial data has precluded a thorough GIS site suitability analysis for the JCI until now. It is anticipated that the results of the analysis presented will aid interested farmers, manufacturers, the CIB and businesses in the future location based decisions within the industry. The model pioneered here could serve as a beachhead in sp atial analysis research in the Caribbean. Suitability analysis can be conducted for various crops in different small island territories; but beyond this other applications such as land use / land cover change analysis, land use allocation and development p lanning can all take advantage of the various spatial technologies as they become available in the region.
19 Competitive Advantage vs. Comparative Advantage This dissertation used the framework of competitive advantage as posited by Michael Porter. CA focuse s on the ability of a firm to obtain sustained profits that are greater than average for the industry. This advantage is based on being able to produce the good or service at a lower cost than competitors or being able to charge higher prices than the comp etition through product differentiation. Since this concept is similar to comparative advantage (hereafter CoA), it is beneficial to understand the difference between the two. Comparative advantage is the ability of a firm or country to produce a good or s ervice at a lower marginal and/or opportunity cost than another. According to Gupta (2009), CoA is derived through (1) technological superiority, (2) resource endowments, (3) demand patterns, and (4) commercial policies. Competitive advantage grew out of C oA and can be defined as the ability of a firm is able to create value for its buyers (in the form of) prices lower than its competitors for equivalent benefits or the provision of unique benefits that more than offset by a premium price (Porter 1985). In extending this to nations, it is asserted that national prosperity is created, not inherited (Porter down in the models of comparative advantage (Gupta 2009). There have been regular debates about the differences, similarities, merits and theoretical usefulness of both CA and CoA. According to Neary (2003), CoA is often held as a key determinant for international production and trade patterns. But this is been overlooked by many non economists in favor of CA for predicting the economic fortunes of firms and nations. And this is the root of much of the controversy the
20 promotion of CA for internation al business over CoA Gupta (2009). Neary (2003) asserts that CA depends on monopolistic competition to explain intra industry trade and oversteps its initial focus on firm level activity when seeking to explain national and international patterns. Some, li ke Gupta (2009) believe that CA and CoA are more meaningful when used toget her. I was particularly interested in using CA in my own research because of its usage at various scales, its focus on industry structure and the fact that it incorporates product d ifferentiation as a key component of its approach. The JCI is a one of many industries in the Jamaican agricultural sector and includes individual farmers, private firms and government regulators. The flagship product of the industry Jamaica Blue Mountai n (JBM) coffee, is a study in successful product differentiation and in order to maintain its success, stakeholders have to address the local and international structure of the global coffee industry. A Brief History of the Jamaican Coffee Industry Coffee was introduced into Jamaica in 1728 from Haiti or Martinique by the then Governor, Sir Nicholas Lawes (Wrigley 1988). Coffee spread rapidly with the use of slave labor, mostly in the mountainous areas of the parish of St. Andrew and, in 1737 Jamaica becam e a coffee exporting country when 83,400 lbs. valued at Â£6,300 was exported to Great Britain. Production gradually increased and during the period between 1799 and the abolition of slavery in 1838, Jamaica never exported less than 10,000,000 lbs. of coffee per year. A very large portion of the volume produced of this coffee was planted in the Jamaica Blue Mountains during that time period. The common practice in those days was to cut and burn forest to establish plantations and when the land becomes less pr oductive due to nutrient depletion the planter would then move on to
21 other virgin lands and repeat the process. The abolition of slavery in 1838 greatly reduced the labor force for plantation coffee and over the next 100 years production declined to betwee n 5,000,000 and 12,000,000 lbs. per annum. By the 1940s, the deterioration of agricultural lands, poor quality of coffee produced and lack of quality standards forced Canada the main market at the time to stop buying Jamaican coffee. This led to the te mporary closure of all coffee exports from the island. In 1946, a comprehensive investigation of the industry and its practices known as the Wakefield Report. It observed that: now very poor. As a result markets are being lost in competition with the countries that have taken measures to improve the quality of their coffee exports. This report hig hlighted the need to rehabilitate the JCI and amalgamate the various grower and processing works 1 involved in the manufacture of Jamaican coffee. It envisioned, among other things, a legislation to regulate the coffee industry and the creation of a Co oper ative Association of coffee growers. Thus, the Coffee Industry Board of Jamaica (CIB) was born by virtue of the Coffee Industry Regulation Act of 1948. The All Island Coffee Growers Association also emerged from the recommendations of this report. The isla nd resumed smaller scale production in 1950, and over the next 10 years, the JCI gradually re oriented production towards international markets in keeping 1 In the early days of the industry, the washing, drying and roasting of the coffee cherries were carried out in centralized facilities known as processing works.
22 They export ed primarily to their colonial masters, the United Kingdom (UK) where Jamaican coffee had a reputation of excellent quality. But even with reforms the JCI faced its share of challenges. The 1961 annual report of the CIB observed that: During the past five years, exports have not even reached the 4 million lb. mark. There are many reasons for this unfortunate situation the most important being the high cost of agricultural labor, and the virtual impossibility of mechanizing field practices, since the crop is grown almost entirely on steep mountain slopes. The Industry in Jamaica is passing through very difficult times and some of the problems are not of our making; in fact we have no control over them world overproduction mounting surpluses depressed markets low prices increasing production costs. All these factors contribute to reduced returns to growers. Up until 1969, coffee was exported from Jamaica to mostly the U K However, it was discovered that much of product was resold to Japan for signi ficant profits as the coffee. Jamaica established direct market relations with Japan and sold most of their coffee to them from 1970 onwards. Japan continues to be the primary market for JBM coffee to this day but was especially dominant up until the early 1980s, often purchasing the entire volume of coffee produced. This lead to a scarce supply of JBM coffee for coffee connoisseurs all over the world and combined with i ts unique flavor profile, the JBM coffee established a reputation as one of t he finest coffees in the world. The CA created by this differentiated product facilitated the continued expansion of the industry. The premium quality coffee attracted the highes t market price as the demand for Blue Mountain Coffee was much larger than Jamaica had been able to supply. In an effort to rapidly increase its exports, the government of Jamaica embarked on a major expansion drive for the coffee industry. The first progr am was the Commonwealth Development Corporation funded expansion program in 1980 which
23 accounted for the development of 1200 hectares (3,000 acres) of coffee farms in the Blue Mountain region in the parishes of St. Andrew and St. Thomas. In 1983, the Blue Mountain Coffee Development Project was undertaken to establish an additional 1400 hectares (3500 acres) of coffee in the Blue Mountains. This project was funded largely through a 5.941 billion (US$53 million at the time) loan to the Jamaican government (which co funded the project). The emphasis on this high value agricultural good enabled the JCI to better negotiate many of the issues faced by the conventional global coffee market. These include changing governance structures, corporate concentration, o versupply, interchangeable commodity grade beans, and low farm gate prices (Bacon 2005, 497). The trade liberalization and free trade eras brought increased opportunities as well as increased competition. Structural adjustment policies put in place for Jam aica by the International Monetary Fund (IMF) in the late 1980s made specializing in industries generating foreign exchange attractive to the government and they placed special emphasis on supporting the JCI, especially the JBM sector. In the 1990s the pre vailing World Bank IMF driven political economic consensus (Weis 2000, 304) opened several markets for the JBM coffee brand as well as for several other counties which moved into the premium and specialty coffee niche market. The 1990s saw production and m arketing challenges becoming the central theme of the JCI. Several incidences of drought and recurring disease outbreaks, industry deregulation and devaluation of the Jamaican dollar significantly increased the costs of growing coffee across the island. By the early 2000s, local coffee farmers began to see a general stagnation in prices received due to the growing competition of other specialty coffees (such as Fair Trade and organic products). Production costs
24 continued to increase and were joined by adver se weather conditions. A spate of hurricanes between 2004 and 2008 which destroyed thousands of trees across the island alongside disease outbreaks led to hundreds of coffee farmers leaving the industry, while hundreds more have found it more difficult to make a living from growing just coffee and sought to diversify their economic base to include other crops. The global recession in 2008 further softened demand for JBM coffee as consumers reduced purchases. Japanese companies, the traditionally dominant pu rchasers of Jamaican coffee, have shifted from advance purchases to just in time purchasing in order to manage the slowdown in sales. Although the CIB has continued their exploration into other markets while aiming to maintain market share in Japan, farmer s uncertain about the future have continued to exit this seemingly prestigious industry. This has resulted in production levels declining to levels not seen since the devastatio n of Hurricane Gilbert in 1988. The JCI has to reinvent itself to maintain its presence in the ever competitive specialty coffee market. Through the papers written in this dissertation, it is hoped that the farmers, processors, and exporters in the local industry as well as the CIB will be able to develop strategies appropriate to th eir needs in order to successfully negotiate the current challenges and remain a success on the international coffee market
25 CHAPTER 2 FORCES MODEL Overview Agriculture has been the economic foundation for many nations over the course of history. However, it has been generally recognized that nations with a large proportion of their economies in agriculture enterprises tend to be less developed due to the low profit margins and the cu rrent emphasis on either producing high volumes for low prices or turning to specialty production where lower volumes can be sold for higher prices. The Caribbean island of Jamaica was for many centuries, an agriculture based economy. According to Witter ( 2005), the island diversified from concentrating on the production of food for the domestic market and sugar and bananas for export to the United Kingdom (UK) to industrial and service endeavors after World War II. However, one of the few large agricultura l sectors to persist was the Jamaican coffee industry (JCI). Employing approximately several thousand people, the industry remains one of earning US$17.9 million (over J$1.5 billion) in 2012 a ccording to the Bank of Jamaica (2014), mainly through the export of Jama ica Blue Mountain (JBM) coffee. Introduced to the island in 1728, Jamaican coffee established a reputation for being an exotic coffee enjoyed by the elite in Jamaica and the UK. An Ar abica varietal cherished as a mild, smooth coffee with hints of chocolate and commanding prices as high as US$50 per pound (Espresso & Coffee Guide 2011), JBM coffee has remained in the highest echelons of specialty coffees for the past several decades. It s prominence is testament to its quality and is a perfect example of embodying the concept of
26 competitive advantage (CA) as it has been able to sustain profits that are greater than average for the industry. Over the past two decades, JBM coffee has seen i ncreased competition as specialty coffees became more popular and consumers were presented with a multiplicity of varieties, blends and drink options (Roseberry 1996). Although being in a monopolistic competitive environment meant that JBM coffee was not i n direct competition with other premium coffees, rising production costs due to monetary devaluation and a slow economy, and increased impacts of hurricanes, droughts and other natural hazards over the past 10 years have greatly reduced profitability among st stakeholders. The slowing demand for Jamaican coffee due to the focus on other specially marked coffees (such as Fair Trade and organic products) and saturation in traditional markets have combined to reduce the viability of the JBM brand. Several hundr ed farmers have subsequently ceased production and some processors and dealers have had to downsize their staff in order to break even. All stakeholders, from producers, dealers to regulators have had to re examine the industry and how best to regain the C A they once enjoyed. This paper focuses on the research question: What are the strengths and secondarily, how can it be used to assess and improve the competitive advantage of the JC I? The significant changes in the global specialty market means that a fresh look has to be taken at the core forces governing the structure of the industry. According to Porter (1985) maintaining a competitive advantage requires consideration of many disc rete activities ranging from production of the raw materials to the delivery of the end
2 7 product to the consumer, i.e. the value chain. The PFFM summarizes forces that shape industry competition and is a useful tool for assessing the strengths and weaknesse s of the JCI. This paper first reviews the components to PFFM, and how it has proved to be useful in diverse settings. Next, the JCI is then critically assessed in light of each of the five forces and how each force operates at the intra national and inter national level. Finally, the implications of the relative strengths of each force within the JCI is discussed with recommendations on how best the industry can capitalize on the strengths, address its weaknesses and take advantage of the opportunities that exist in the premium and specialty coffee market. Study Area The Caribbean island of Jamaica is home to 2.9 million people and among other things, world famous coffee. Typically grown in the mountainous regions of the island, the coffee growing areas are either classified as being in the JBM region or in the non Blue Mountain (NBM) region (Figure 2 1). Most coffee farms are located above 300 m on volcanic or clay based soils. The Blue Mountains themselves are located in eastern Jamaica and form the longest mountain range in the island. With peaks reaching as high as 2256 m, the range covers over 750 km 2 and it is in these higher elevations that the Jamaica Blue Mountain coffee is grown. JBM coffee is grown at elevations ranging from a low of 550m up to 1677 m, with the best beans growing between 1067m and 1667m. At these elevations, the higher quality Coffea arabica thrives and produces a drink that is smooth, with more delicate flavors than those grown at lower elevations as the coffee berries mature more sl owly. 8000 farmers found here).
28 Figure 2 1. Major coffee growing regions in Jamaica. The Jamaica Blue Mountain (JBM) coffee region is highlighted in blue and the No n Blue Mountain (NBM) cof fee regions are shown in brown. This concentration came about as a result of heavy investment in the 1980s by Japanese coffee companies who were the major purchasers of Jamaican coffee. However, the number of farmers (and consequen tly production) has been steadily declining since 2008 due to stagnant prices resulting from the increased popularity of specialty coffees. Combined with the global recession in 2008 which led to declining exports, uncertainty has risen among stakeholders. Apart from softening demand, there are many other factors playing out in the JCI. The exploration of the industry using PFFM will highlight a number of issues within and beyond the study area.
29 Background and Applications in th e Literature The JCI is at a cross roads in terms of how it maintains and increases its presence in the ever competitive specialty coffee market. Traditionally relying on word of mouth and advertising to select clientele, the JBM brand has thrived over the last three decades in a few core markets, primarily Japan. But with the major customer base of post World War II baby boomers from Japan dying off and an increased acceptance of coffee blends in the premium coffee market, stakeholders in the JCI have been scrambling to adjust operations in order to maintain and possibly even increase global market share. Jamaica is primarily a supplier of green coffee beans and thus faces the challenge of receiving the lowest profit margin in the coffee value chain (Daviro n and Ponte 2005). As the JCI is dissected using PFFM with the aim of improving the CA of the industry, it is important to get an idea of the purpose of the model, its various elements and how the framework has been applied in the br oader literature. Porte This industry st ructure, whether at the intra firm or inter firm level will impose certain limitations and provide certain guidelines on how each firm operates. As stated previously, PFFM can be a useful tool for assessing the strengths and weaknesses of the JCI because o f its relation to competitive strategy and its applicability acro ss several scopes of analysis. More importantly, a proper analysis using this model should enable the JCI to r etain its CA. The dominant paradigm of the last 30 years trade liberalization encouraged free trade where each nation focuses on areas where they have a comparative advantage,
30 i.e. areas where they have a production cost advantage. However, the localized focus of CA i s a more applicable concept, especially for niche market products that focus on being unique, such as JBM coffee. In his 1985 book, Competitive Advantage fundamentally out of the value a firm is able to create for its buyers (in the form of) prices lower than its competitors for equivalent benefits or the provision of unique ds, when firms (such as those in the JCI) sustain profits that are greater than average for the industry then they have a competitive advantage over its rivals (such as other premium coffee producers in the Caribbean). This advantage is either based on a c ost advantage (production at a lower cost than rivals), by differentiation (creation of a product that is perceived as being unique on an industry wide basis) or both (Huggins and Izushi 2011). According to Porter (1985), maintaining these advantages requi res the cumulative impact of many discrete activities ranging from production of the raw materials to the delivery of the end product to the consumer i.e. the value chain Porter identified five competitive forces that determine the ability of firms in an industry to earn, on average, rates of return on investment in excess of the cost of capital (Porter 1985, 4). These five forces can vary in strength (depending on the industry) and are arranged as illustrated in Figure 2 2, shown below. The model assumes a perfect market, static market structures and competition as the driving force for a firm (Krishnamurthy 2010).
31 Figure 2 2. The five competitive forces that determine industry profitability a.k.a. The five forces used in the model are: 1. The bargaining power of suppliers: how strong are suppliers relative to the buyers of the good / service? 2. The bargaining power of buyers: how strong are the buyers relative to the suppliers of the good / service? 3. T he threat of new entrants: what are the possible sources of new suppliers or buyers in the industry? 4. The threat of substitute products or services: what other goods or services could viably provide similar or superior utility to consumers in the industry? 5. Rivalry among existing competitors: how strong is the competition for market share among players that currently exist in the industry? Though not universal to all industries, PFFM has been successfully applied in a number of contexts globally because the y systematically impact profitability in a predictable direction (Magretta 2012, 52). According to Magretta (2012) each force has a relatively predictable impact on the bottom lines of a business price and cost (which determine profit margins): powerful suppliers of goods and services can use their
32 negotiating leverage to charge higher prices or obtain more favorable terms, thus lowering industry profitability while powerful buyers of goods and services drive down profitability to suppliers through lower prices and may increase costs to suppliers by demanding more value. The threat of substitute products or services drive down profitability by putting a cap on the prices firms can charge without losing sales to the substitutes and increase costs as firms w ork to safeguard against said substitutes. The threat of new entrants also put a cap on prices that can be charged since excessive prices open the door to competitors that can provide lower cost solutions and industry costs increase as firms seek to satisf y customers. Finally, industry profitability can decline if rivalry is intense because stakeholders tend to engage in price competition to maintain market share and increase costs developing new products/services, again to capture market share. The PFFM ha s been used in numerous industries and at various scales over the years. Neves, Kalaki and Trombin (2011) explored the elements that would be necessary for a new geographic indicator (GI) from the Caf do Cerrado region in Brazil to succeed in the specialt y coffee market. Although Brazil is the largest coffee producer in the world, this paper was part of an effort to expand the number of producers that were certified under that GI as coffee from that area was receiving lower prices than similar Arabica coff ees in Central America. After conducting a PFFM analysis of the region, they were able to identify the different strengths of stakeholders in the region (Figure 2 3) They also found that though gains were made in various areas of the production process, e consumer which can be created through the development of a central message of the
33 brand, creating a distinctive image of the product in consumers' minds by emotional Figure 2 3. Porter Five Forces Model of the Caf do Cerrado region in Brazil (Neves, Kalaki and Trombin (2011). Nyugen (2012) also conducted a coffee based PFFM analysis on the potential of Vietnamese coffee in Scandinavian countries. His analysis of the five forces rated the nations of Denmark, Finland and Sweden as high in buyer power due to their increasing levels of coffee consumption per capita, and the supplier power of Vietnam as low due to the preference for Arabica coffee instead of the Robusta coffee mainly produced in that country. The threat of new entrants was seen as high due to the work of those Scandinavian countries in development projects in a number of African countries to improve coffee production and these ties would foster greater imports. Substitutes from soft drinks, juices and instant coffee were noted and rivalry among producers were said to be moderate based on the fact that price (the main driver for Robusta coffee) has
34 remained relatively stable for a prolonged period of time. Nyugen (2012, 36) noted that through effective price strategy of logistics and procurement management to reduce the Other examples of tertiary education sector in Canada. B radley (2007) identified the threat of new competitors as the most important force operating in the global wine industry as more few South American vintners. He also identifie d substitute alcoholic beverages that were eroding the market share held by wines as another key force that was eroding industry profitability. The bargaining power of both suppliers and buyers were seen as low due to the diversity at both ends of the spec trum while the rivalry among competitors, though intense was somewhat negated by the diverse markets that were targeted. Among the approaches Kumar, Massie and Dumonceaux (2006) used to analyze the cosmetics market, their PFFM analysis identified supplier power as low to medium, buyer power, internal rivalry and the threat of new entrants to be high and the threat of new substitutes to be low (but threat of cosmetic complements high). Finally, in Pringle and Huisman (2006) paper, the increased marketizatio n of higher education was
35 seen to reduce industry profitability due to the high levels of rivalry among educational institutions. The threat of substitutes were seen as high due to the similarities of many of the services offered but The threat of new entr ants were seen to be low due to the high bargaining power of the suppliers of higher education and finally the bargaining power of buyers were considered to be high, mainly due to the switching costs faced by students. Overall, technological innovation was thought to be a major driver as technological change was found to have accelerated the viability of online tertiary education and decreased the competitiveness of brick and mortar institutions. The challenge remained for the traditional tertiary providers to take advantage of the various technologies to maintain the high standard of education that was desired. An Overview of the Global Coffee Market Coffee is a brewed beverage prepared from the roasted seeds of the coffee plant. Grown in over 60 countries worldwide, most coffee is produced in the equatorial regions of Latin America, Africa, and Asia. Green (unroasted) coffee is one of the most traded agricultural commodities in the world (Pendergrast 2009) and according to the International Coffee Organiza tion (ICO), in many years coffee is second in value only to oil as a source of foreign exchange to producing cou ntries. 134.4 million (60 kilogram) bags were produced in the 2011/2012 coffee year (ICO 2013a) and an increase to 144.4 million bags was estima ted for the 2012/2013 crop year (ICO 2013c). Brazil (32.4%), Vietnam (17.9%), Indonesia (6.4%), Colombia (5.7%) and Ethiopia (4.5%) combine to produce approximately two Vietnam the largest producers by a wide m argin. However, this increase in production has been accompanied by sharp declines in prices received as supply exceeds demand. According to the ICO (2013c), these price movements have most recently
36 been exacerbated by depreciations in the exchange rates o f several exporting countries against the US dollar. While a weaker currency may encourage greater selling by exporting countries and could potentially increase the price paid to growers in domestic currency, it also puts further downward pressure on price s received and increases the cost of inputs which are imported in US dollars. As a result, particularly given the significant decreases in coffee prices over the last two years, current market prices are still believed to be below the cost of production (I CO 2013b). In terms of consumption, growth has been flat in the traditional markets in Western Europe and North America but this has been offset by growth in the emerging markets of Eastern Europe and South East Asia (consumption increasing by nearly 50% a ccording to ICO 2013c) and increased domestic consumption in exporting countries, most notably Brazil and Indonesia. The Specialty Coffee Market Another important growth market has been that of specialty coffee. Although figures are hard to come by, premiu m coffees such as JBM coffee as well as sustainable coffees such as Fair Trade, organic or Rainforest Alliance are no longer an inconsequential market niche. According to Perriot, Giovannucci and Kasterine (2010, 13), the sustainable coffee segment has been increasing by about 20 25% each year compared to about 2% for conventional coffee. As major corporations have become increasingly interested in this segment and so it is likely that this trend will continue. They fu rther state that if recent rates of growth do indeed continue, then certified coffees might grow from the 2009 level of 8% to have a worldwide share of 20 25% of global green coffee trade by 2015. It was also noted that in wealthier markets i.e. the
37 USA an d Western Europe, some national market shares have already reached between 10 40%. The Coffee Value Chain A simplified coffee value chain is presented in Figure 2 4. The concept of the value chain was pioneered by Michael Porter and it is defined as a coll ection of activities that are performed to design, produce, market, deliver and support a product (Porter 1985, 36). Each of the five boxes as well as the arrows that flow between them encompass everything from coffee cultivation, processing, trading, tran sportation and marketing which involves and provides employment fo r millions of people worldwide. Daviron and Ponte (2005) noted that as more countries expand their production of primary products (such as the explosive growth of coffee production in Vietna m in the 1990s) there have been declining terms of trade for both Arabica and Robusta coffee. According to Daviron and Ponte (2005), there are three key dimensions of the commodity production: their input output structure and geographic coverage, their form of governance (entry barriers, buyer vs. producer driven) and their institutional framework (how the market is controlled/operated, role of technology and information a nd incorporation of agents at different levels). As a general rule the labor intensive, less technologically driven, low value and time consuming aspects of the chain are carried out in the producing countries while the less labor intensive (but more techn ologically driven), higher value aspects are carried out in the consuming countries. The fewer the proportion of links before transfer to consuming countries, the fewer benefits can be realized by small farmers.
38 Figure 2 4. A basic coffee value chain Depending on the variety, coffee is either grown under shade or in full sun. After the coffee cherries have matured, they are harvested and sold to various agents either as cherries or dried beans. These middlemen then transport the coffee for further proc essing. The coffee bean is separated from the flesh either by a wet method (Arabica coffees) or dry method (Robusta and some low quality Arabica coffees), dried, sorted and graded, then prepared for export either as green beans or, with appropriate roastin g, pre packaged roasted coffee. Daviron and Ponte (2005) note that the stages of the chain up to the export of green coffee tend to be under the control of states and firms in the producing countries as green coffee is the ideal form for the long distance trade between the producing countries and the core markets since it can be stored for long periods of time. Coffee importing is often done by transnational corporations (TNCs) and trading houses such as Nestl and Tchibo, while large scale coffee roasting and manufacturing of instant coffee are done by food processing TNCs. Smaller
39 importers that serve the specialty and premium markets also become involved at this point. Once the coffee is processed, they are then sold to coffee consumers through various wh olesale and retail channels. The most visible of them all is the coffee house where individuals can enjoy freshly prepared coffee from around the world. The US based company, Starbucks is the largest of them all with 20,891 stores in 62 countries, includin g 13,279 in the United States as of March 2013 (Loxcel.com 2013). Data Sources This assessment of the JCI was based on information primary data collection as well as a number secondary data sources. The primary data was collected using semi structured inte rviews with farmers, processors, dealers and industry regulators across the island. Informal interviews and baseline information was collected between May and August 2011 while formal data collection was carried out between June and August in 2012 and 2013 The interview questions focused on the challenges being faced by each group of stakeholders and how they were responding to them. Additional questions on their perspectives on the overall JCI and the global coffee market were also asked. Paper 3, which f ocuses on the challenges and responses of stakeholders in the JCI provides a detailed analysis of the interview data collected. An example of one of the interview forms can be seen in Appendix A A number of secondary data sources were used in this PFFM a nalysis. The Coffee Industry of Jamaica (CIB) provided information ranging from annual reports to production and export figures to tutorials on the value chain of the JCI. The Statistical Institute of Jamaica (STATIN) were a source of archival data to corr oborate some of the information provided by the CIB. The ICO monthly and annual reports and publications from the Specialty Coffee Association of the Americas (SCAA), the Food and
40 Agricultural Organization (FAO), Fairtrade Labelling Organization Internatio nal (FLO) and the International Federation of Organic Agriculture Movements (IFOAM) provided valuable information on the global coffee trade, including the specialty coffee market. Finally, the literature published on applications of the PFFM and various e lements of the worldwide coffee industry and a variety of online sources provided supporting evidence for the relative stre ngths of each force in the JCI. PFFM Analysis of the JCI The abovementioned applications of PFFM highlight that the model can be used market structures and competition as the driving force for a firm. The JCI provides another test case for this model as it operates under the rules of monopolistic com petition rather than a perfect market. Although t he long run characteristics of a monopolistically competitive market are almost the same as a perfectly competitive market, it should be noted that two big differences between them is that monopolistic marke ts focus on product differentiation and there a great deal of non price competition based on this differentiation (Hunt 2011). Other characteristics of monopolistic competition that will be explored further in the discussion include the higher degree of ma rket power than conventional firms. This allows producing firm to raise its prices without losing all of its customers (because of brand loyalty) or lower prices without triggering a potentially ruinous price war with competitors. The following analysis e ncapsulates the major players in the JCI: the small, medium and large farmers, coffee processors, and dealers (roasters and/or exporters of coffee). In Jamaica, many dealers are also coffee farmers, but they are usually they are the largest producers which enabled them the vertically integrate up the value chain. At
41 the intra national level, farmers are the major suppliers and the major buyers include processors and dealers. At the international level, Jamaican coffee dealers become the suppliers and buyers are the international roasting companies, coffee retailers and the actual consumers of Jamaican coffee. A summary of the structure of the JCI is shown in Figure 2 5 a later section will discuss the structure of the international market from the perspect ive of the JCI. Figure 2 5. PFFM summarizing the forces within the Jamaican coffee industry Bargaining Power of Suppliers Farmers bargaining power and this also seems to be th e case of Jamaican coffee farmers. There are approximately 8000 coffee farmers in the island according to the CIB; the majority
42 (about 6500) are located in the JBM coffee region. Field interviews revealed that although there are farmer groups and farmer co operatives, the best organized co ops are located in the NBM regions because of the lower prices received by producers and proper organization is necessary to remain viable. In a pattern similar to the largest coffee producing countries, most of the coffe e is pr oduced by a handful of farmers. These large farmers often tend to be dealers as well and they have much greater bargaining power than the other farmers. Some of these large farmers have their own coffee at a much cheaper rate to increase their overall profit margin. Other vertical integration measures may involve having their own roasting plants and exporting and sales divisions. Whatever the extent of the combination, these farmers have several a dvantages over the smaller farmers. It was reported that have greater access to loans from financial institutions as they are seen as better risks than the small farmer because they have more collateral and are often more conversant with the process of acc essing financial assistance. And, if the farm has a bad year due to some unfortunate circumstance, the large farmers have the capacity to rebound and still have the capacity to repay the loan. Additionally, because they have such large production capacitie s, they are in a much better bargaining position with other members of the value chain (if they are not involved in those aspects) and are more able to influence decision making to benefit them because they contribute substantially to the industry. Jamaica Coffee Corporation, Jamaica Standard Products, Coffee Traders, Gold Cup Coffee Company and Wallenford Coffee Company are among the elite group that produces
43 other. Because there a re so many farmers producing relatively small amounts of coffee, there is little to no room to bargain with the purchasers of the coffee whether they be individual middle men (usually larger farmers) or representative of the processors themselves. This lea ves them with the likelihood of realizing slim profit margins at best or below sub sistence level income at worst. Currently farmers in NBM regions earn less money per box of coffee than it takes to produce it. In this loss making position, farmers either g ive up on the coffee or do only the bare minimum to maintain their coffee as they do not have the financial resources to do otherwise. So, it was unsurprising that field research revealed that most of the remaining farmers in the NBM region were participan ts in their local co ops. Those in the cooperatives can pool their yields to form a sort of a trade group that can get a slightly better price than those that go it alone. Most farmer in the JBM region earn more per box than farmers in the NBM region and t herefore tended to negate their limited bargaining power by being less involved in the farmer co operatives in their districts. Because of the price they receive, they have the false sense of security that they can survive without grouping with their fello w coffee farmers in order to negotiate with the coffee dealers and processors. Processor and roasters Few coffee processors exist in Jamaica. Coffee roasters (some of which are integrated with existing processing operations) are similarly uncommon and this gives the significant leverage within the JCI as suppliers of coffee. The bargaining power of processors is fairly high as coffee cannot be exported as cherries but has to be at least processed to the dried green bean stage. Field interviews revealed that processors can set their prices with more leeway depending on the demand for the beans. Those in the
44 business of exporting or roasting coffee, have little choice but to pay the rates that are set. Roasters have lower bargaining power than processors but m uch more than the farmers. Being located at a higher position in the value chain meant lower levels of competition and none of these firms focused solely on roasting they were often a part of another company that exported coffee through the CIB or had a division that focused on value added production and export. Local roasters also have the advantage of being able to supply consumers directly. This increases their bargaining power because there are only a few roasters licensed to supply the worldwide dema nd for roasted JBM coffee from Jamaica (although there is still competition from international roasters that purchase Jamaican green bean coffee). On the local market, roasters face the challenge of not working in a coffee drinking culture, and the relativ ely high cost of the coffee makes it harder to sell their coffee locally .Some blend their roasted coffee with imported coffee to increase their profit margin (eg. Jamaica Mountain Peak coffee sold by Salada Foods). Dealers and exporters Coffee dealers rep orted challenges similar to those experienced by roasters as well as mounting challenges to marketing their coffee. On the local market, the high price of the coffee and the presence of several substitutes have resulted in low bargaining power is fairly lo w. Internationally, there is stiff competition among suppliers of premium coffee. Although many of the products highlight the unique nature of Jamaican coffee, there is a limited pool of buyers willing to pay for this premium coffee; increasing market satu ration has also reduced the power of these suppliers.
45 Bargaining Power of Buyers Farmers Only larger farmers have the capacity to be buyers of coffee. They may purchase coffee from the smaller farmers to achieve greater economies of scale or to increase their leverage as suppliers of coffee). Many of these farmers that buy coffee may be part of a larger company that processes/roasts/exports coffee. Additionally, because some of these larger farmers pay cash for the coffee, they tend to have a high level o f bargaining power because some farmers cannot afford to wait for the months it may take to get paid for their coffee through the regular channels and so may accept a smaller, more immediate payment for their cherry coffee. This allows the larger farmers t o make a profit when they sell this coffee to the processors. Processors Processors have high levels of bargaining power compared to the farmers. As previously noted, they are few in number and since farmers depend on them to buy the coffee, they are free pay farmers as low as the base price set by the CIB up to 25% above this (or more if demand for the processed coffee is heavy). Field interviews in Jamaica indicated that farmers received very low prices in the 2009 2010 season but prices have been stead ily increasing into the recent 2012 2013 season as external demand for JBM coffee increased. Since the farmers have no major influence on the base price that is set, the processors are in a strong position relative to the farmers. Local roasters and expo rters The final recipients of processed coffee, these firms do not have much bargaining power with the processors unless they are linked with the processor in question as certain prices are set. However, they do have higher bargaining power
46 relative to the farmers because of the profit margin that can be realized on the global coffee market. However, the prices that they can sell the coffee for internationally are dependent on the quality of beans they have for use and the processors are the ones that insur e that quality is maintained in the processing of the beans. Thus, the exporters of green beans would want to do all they can to keep the bean quality high. Local roasters are not as dependent on this as they will be roasting the coffee regardless of the coffee quality and can live with beans that have defects, whether they sell them as whole beans or roasted beans. Threat of New Entrants Farmers The biggest barrier to becoming a coffee farmer in Jamaica is the start up cost. According to estimates from th e CIB, it costs US$10,000 (or just over J$1,070,000) per hectare to bring a coffee farm to economic productivity. While this may be feasible for those with significant financial resources, in a country where the GDP in 2012 was US$9100, this cost creates a huge barrier of entry for most people in Jamaica. In the 1980s where coffee was expanded greatly, there were a number of incentives and subsidies that were provided to encourage coffee production. These are however no longer in existence and so it is main ly those entities that are already involved in local produc tion that are likely to expand. A few overseas parties (such as returning residents or foreign investors) do get involved in coffee as they have access to the necessary financial resources to enter Jamaican coffee production, almost always in the Blue Mountain region. The high costs of production within the JCI render the threat of entrants fairly low. The barriers to enter coffee processing, roasting and exporting are somewhat lower but again, high
47 infrastructure costs and government policy tend to limit the number of entrant into the local sector. Processors From the perspective of firms wishing to invest in the processing aspect of the coffee industry, one has to be able to invest millions of Jama ican dollars (tens of thousands of US dollars) to establish a suitable factory and so again the barrier is high probably even higher than starting a coffee farm. However, once set up the returns are certain so long as there is enough coffee produced to a void ineffi cient operation of the factory. Roasters It is much easier to enter the roasting aspect of the industry as the major components involve acquiring a roaster and purchasing beans from processors. Thus the force here is low, especially since roast ers are exempted from several CIB regulations concerning the standards of coffee for export since the beans are being roasted. Dealers and exporters The dealer/exporter segment is somewhat harder to enter than the roaste r segment. Most dealers are keen to retain and increase their market share. Traditionally, in order to get a dealer license, one had to be able to produce a substantial amount of coffee and so exporters of green beans were also farmers. Today, there are special dealer licenses which allow yo u to be an exporter without being a farmer. Thus the entry barriers are not very high here. However, new entrants have to be able to establish a secure supply of coffee beans and meeting the stringent requirements of the CIB.
48 Threat of substitutes The thre ats of substitutes for coffee at the global level are also generalizable to the JCI. Overall the threat of substitutes is high. Specialty coffee products emphasize being unique indu stry. However, the unique nature of JBM coffee offset by alternative hot drinks and caffeinated beverages being sold at a lower price point such as by tea, carbonated beverages, energy drinks and other similar products to mainstream coffee are greatly dimi nished when contrasted to the JBM coffee market. Additionally, Jamaica inherited the tea drinking culture from their prior colonial masters, Great Britain and so coffee is not consumed on a large scale. The JCI also faces the threat of imported coffee being used to make low cost coffee products being marketed in Jamaica. This poses a threat in so far as deceiving local consumers of the quality of Jamaican coffee as encourage the proliferation of Jamaican coffee blends locally as pointed out by one inter viewee. Among coffee farmers, crop diversification is the main substitution threat. Low returns mean that other crops have to be cultivated to ensure at least subsistence level income. Rivalry among Competitors/Stakeholders Farmers There is no appreciable rivalry among local farmers. The smaller farmers have just been trying to survive over the last couple of decades and are more apt to cooperate and help each other out so that they can stay in production. The larger farmers may compete to buy the coffee fr om the smaller farmers but they do not need to squabble since there is only one market for the coffee cherries the processors.
49 Processors Traditionally, there is not much rivalry among processors but this has changed over the last two years. The privatiz ation of the two largest coffee processors in the island has led to increased competition for available coffee cherries, especially with production declining over the past few years. Although this increased demand for processed beans appears to be a tempor ary situation, increased efforts to diversify JBM coffee sales may lead to such rivalry becoming the norm rather than the exception. Roaster s The privatization mentioned above have even stronger implications for local roasters as the main processing compan ies have stated their intentions to expand their green beans, there is a limited stock of coffee available for roasting purposes. Roasters have had to become more proactive in sourcing beans for use and it is expected that as demand increases, prices for coffee beans and consequently coffee cherries will increase until supply matches demand. Dealers and exporters The main rivalry among Jamaican coffee dealers and/or exporters is centered on clientele who are focused the having some of the best coffee in the world. Japan has been the main buyer of Jamaican coffee for several decades so ther e has been quite a bit of jostling to sell to the various importing companies. Other markets for JBM coffee include the US, Canada, China and the EU. These markets are saturated with a dazzling variety of coffees and so the competition to extract sales fro m these markets is strong. Outside of the Japanese market, the local dealers and exporters are less
50 competitive because they each seek what they believe are the perfect clientele for their products. The Jamaican Coffee Industry in the Big Picture: Comparison to the Global Coffee Market Most tropical commodity chains are buyer driven as they fall among the group of labor intensive consumer goods industries producing goods (Talbot 2002, 704). In order to blunt the bargaining power of buyers, producers in these commodity attempt forward integration: moving from their roles as suppliers of these tropical commodities in raw or semi processed forms (which are subject to declining terms of trade) to more advanced processing stages of the chains (Talbot 2002 ) where most of the value is added an d most of the profits are made. Figure 2 6. PFFM summarizing the position of the JCI in relation to the international coffee market
51 This section briefly looks at the JCI in relation to the international coffee market and is highlighted in the PFFM shown in Figure 2 6. This comparison of the similarities and differences with the global industry will serve as a platform for considering how the industry can maintain its CA. Bargaining Power of Suppliers The top 10 larges have the strongest negotiating positions with global importers, roasters and retailers because they supply the world with such a large proportion of coffee. But most producing countries do not enjo y this advantage in fact they are unable to compete with the largest producers based on just volume very often they have to convince the world that they have something special in their coffee that makes them unique. This strategy has been pursued succe ssfully by Jamaica, Hawaii, Kenya, Ethiopia and other producers of premium coffees. The average indicator price for the month of January 2014 was 110.75 US cents per pound of green bean coffee with the average price for Colombian Milds (highest quality mai nstream coffee category) averaging 132.90 US cents per pound (ICO 2014) prices that are believed to be below the cost of production (ICO 2013c). Producers in many other countries have therefore taken the lead to delve into specialty coffee and have dive rsified even more into both the premium coffees and the various specialty marks Fair Trade, organic, Utz Kapeh, Rainforest Alliance and Bird Friendly among the most common. This has increased their bargaining power to some extent as coffee consumers were made more aware of the intrinsic attributes of these types of coffees. However over the last few years this segment of the global coffee market has been approaching its saturation point and this has consequently reduced the bargaining power of suppliers. Over the last decade,
52 there has been a significant increase in the consumption of coffee within large producing nations such as Brazil, India and Indonesia as well as emerging nations in Eastern Europe and the Oceania region (ICO 2013a, ICO 2014). These ma rkets present an opportunity for producing nations to increase their bargaining power if they ca n claim share of those markets. The JCI has moderate bargaining power on the international coffee market. rts and have to be certified and exported through the CIB. Roasted coffee is a fraction of the JCI and is not tied to the CIB with regards to being exported through them. Suppliers of green bean coffee face the challenge of not having a local market to ser vice. Most exports are international (and outside of the Caribbean) with the biggest markets being Japan, USA and then Europe according to data from the CIB. The long shelf life of green bean coffee usually reduces the bargaining power of the exporters, a s importing nations can hold the product for several months. However, being positioned in the premium coffee market and engaging in monopolistic competition usually offsets this disadvantage as purchasers do not desire to see the quality of the beans degra de while in storage. There are exceptions buyers in the main Japanese market have built up inventories that reduce the bargaining power of Jamaican suppliers; thus dealers reported in the field interviews that they were seeking new markets where they wil l be in a stronger bargaining position. Despite these difficulties, Jamaica receives substantially higher prices than the world market. In contrast to the indicator prices listed by the ICO, JBM coffee is exported at between 1000 to 2000 US cents per pound for green bean coffee
53 (up to 15 times the world market price) and between 2500 to 4000 US cents per pound for roasted coffee (10 25 times the world market price). Bargaining Power of Buyers Coffee purchasers once faced limited supplies of coffee for whi ch they had to compete fiercely. This has not been the case for the past 150 years the rapid expansion of coffee production in countries all over the world has steadily accrued most of the bargaining power to purchasers of coffee. Importers of both Robus ta and Arabica coffee beans have had to deal with large inflows from producing countries and this has allowed them to negotiate lower prices which producing countries have little leeway to change. If they refuse, the importers can alway s secure another sup ply source. International roasting companies (often a division of an importing company or vice versa) have also seen an increase in bargaining power. The large supply of beans has allowed them to not only obtain coffee at lower prices but have enabled them to in itself harsh and not very palatable but by adding in some Arabica coffee this flavor can be improved. Conversely Arabica coffees may also have some of Robusta c offee blended in since many Arabica varietals have a flavor profile that is not easily lost. This reduces the unit cost and increases the profit margin realized by the roasting companies. As noted by Roseberry (1996), even premium coffees like JBM do not e scape this there are a number of Jamaican style coffees sold by roasters. According to the Tropical Commodity Coalition (2013), international coffee trading companies often operate in the coffee producing countries via joint ventures with local middlemen Five large companies control most of this trade: Neumann and Volcaf (both based in Germany); Cargill; Decotrade (trading arm of Sara Lee/Douwe Egberts)
54 and Taloca (owned by Philip Morris/Kraft), both based in Switzerland. These companies are expected to continue investing in operations in origin countries to meet the needs of major roasters. Coffee roasters process green coffee beans into a variety of end Commodity C oalition 2013). It was estimated that almost 45% of the green coffee imports in 2012 was done by the five largest roasters that mainly sell their processed coffees in the European, American and Japanese markets. These are: Nestl and Philip Morris/Kraft (1 3% each), Tchibo and Proctor & Gamble (4% each), and Sara Lee/Douwe Egberts (10%). Tchibo focuses on the German market, Proctor & Gamble, the US market and Sara Lee/Douwe Egberts the European and Brazilian markets. Nestl dominates the soluble coffee marke t with a market share of over 50%. Although suppliers tend to have more leverage in the specialty coffee sector, the increasing volume of these so called specialty coffees have enabled the international companies to negotiate lower prices, blend these coff increase their p ower relative to the suppliers. Consumers have had their bargaining power increase to some extent. Over the last three decades consumers markets have seen a rise in the number of brands and typ es of coffees that are available to them. This increase in choice has allowed them to demand lower prices of the suppliers of mainstream quality as well as higher quality due to their exposure to both premium and specialty coffees. The increase in sensitiz ation of the issues surrounding coffee production has enabled consumers to vote with their wallet and this has forced everyone from farmers to importers to roasters to either
55 increase the quality of their product or revamp the story of how their coffee is produced in order to meet/counter the demands of the coffee consumer. major market of Japan. Sales have fallen in that country due to the economic constraints of the customer bas Japanese importers have been in a stronger position to dictate terms to the Jamaican coffee stakeholders. This has led exporters of JBM coffee to focus on seeking new markets for their coffee. If a suf ficient customer base is found elsewhere it may be that Threat of New Entrants The threat of new entrants depends on the segment of the value chain being examined. In the retail coffee m arket, the low barriers of entry result in the frequent entry (and exit!) of coffeehouses and similar ventures. In terms of coffee production, there are always new farmers within a country and there are often changes in the dynamics of how each producing c ountry operates that either increases or decreases their market share. But the overall threat of new entrants at the country level is fairly low. In order to be profitable in the non specialty coffee market, the entrant will have to be able to produce enou gh volume or establish a means of differentiating itself from everyone else a real challenge given the odds against that happening, as evidenced by the fact that the last major entrant into the production market was Vietnam in the 1980s. Because of the h igh supply of coffee relative to demand, there is little incentive for a country that is located in a suitable part of the world to enter into coffee if they
56 The threat of new entrants is also fairly low in the processing, export a nd import of coffee but for different reasons. Within a producing country, the need for a new coffee processor appears when production increases, beyond that, it is difficult to operate profitably. On the international trade market, established exporters a nd importers do not take kindly to competition and therefore have a tendency to leverage their size and ability to influence government policy and consumer markets in such a way increase the barriers to entering the markets in which they exist. However, the rise of specialty coffee has provi ded an avenue for new entrants. The success of Fair Trade and other specialty marks along with consumer demand for specialty coffee have paved the way for many small companies; producers of mainstream coffees have consequently entered this (once) niche market and have introduced their own specialty coffees under a number of brands and marks (e.g. Nestl has a Fair Trade product line and co operates with Rainforest Alliance for its AAA Nespresso program [Tropica l Commodity Coalition (2013)]). With the barriers to entry fairly low, the JCI has had to negotiate the now crowded premium and specialty market in and find creative ways to remind the ir customer base that JBM coffee is a one of a kind product. With new innovations such 2 on the horizon, it is expected that the threat of new entrants will remain high. 2 Are Single uture? http://www.freshcup.com/featured article.php?id=146 (last accessed 27 February 2014).
57 Threat of Substitutes Coffee is the se cond most traded commodity in the world (Pendergrast 2009). But since the early days of coffee shortages in the 1800s there have been many substitutes to coffee, each aiming to gain their share of the beverage market. The two biggest threats to coffee are found in the tea and soft drinks industries. The tea industry has a similar value chain to coffee and operates in similar markets. Very often, it is the culture of a specific country or region that determines whether or not coffee or tea is more successful For example, many of the former British colonies were influenced by the tea drinking culture of their former mother country and to this day still consume significant quantities of tea. Other countries that produce cheaper coffee, such as Brazil have a st rong coffee drinking culture because of the availability of a cheap beverage freezing temperatures during the winter tend to have a strong coffee drinking culture. Soft dri nks also provide an alternative to coffee as many of these beverages also serve to ensure that the threat of substitutes remain high. At the level of individual producers, coffee also faces substitution by other crops. The trend of the global market towards volume as opposed to differentiation has meant more meager returns for produce rs and many individuals and companies across the world have transitioned into growing other crops in order to make more money. Globally, to be a coffee farmer means to be at or below the poverty line and this provides a huge motivation for these persons to diversify away from coffee.
58 Rivalry among Existing Competitors Strong competition prevails at all points of the value chain in the global coffee industry and this has led to low overall industry profitability. Producers compete based on both volume and di fferentiation and although there are clear gaps among the top producing countries, many others work to grow more coffee in order to boost their economy. For those countries that cannot or do not choose to compete on volume, the competition lies in marketin g their coffee as being more special and different from every other coffee in the world. Whether in the premium or specialty markets, there are millions of growers producing hundreds of millions of pounds of coffee for export; all this coffee means lower p rices. Among importers and roasters, the number of possible coffee blends means they blend to maintain market share. The same is true for coffee retailers who not only have to be concerned with the various product offerings but also the spatial location of their stores as well as those of their competitors. All this competition means that the force of rivalry among existing competitors is very high. Porter (1985) and Magretta ( 2012) noted that rivalry is greatest if there are many competitors in an industry (i.e. no industry leader to enforce practices), slow growth that provoke battles over market share, high exit barriers that prevent companies from leaving an industry or riva ls that are irrationally committed to the business (i.e. financial profit is not the overriding goal). The first two are evident in the global coffee industry which has led to price competition the most dangerous form of rivalry according to Porter. The low differentiation among most coffee products, low profit margins (and therefore the accompanying drive to produce
59 high volumes), and the relatively perishable nature of the product all serve to reduce overall profitabilit y in the world coffee industry. T he intense rivalry in the coffeehouse retail sector serves as an example. Because this segment is where the largest profit margins can be realized in coffee drinking countries and regions, many different entities work to gain a portion of a relatively smal l number of people that have the disposable income to go out and purchase coffee outside of the traditional retail channels. There are magazines (e.g. Fresh Cup Magazine ), seminars, and consultants among ot her resources for those involved in the sector. Because the margins for error are rather thin, retailers work strongly to obtain a nd maintain their market share. Overall, the size and structure of the global coffee industry leaves little room for those who are not committed to becoming the best or the most unique. This reality has not been lost on stakeholders within the JCI they have realized that although JBM is a desig ned to maintain or increase market share. A few of these pursuits are discussed in the following section. Considerations for Improving the Competitive Advantage of the JCI The strength of each force at the intra national (local) and international level is summarized in Figure 2 7. The best steps for improving the CA of the JCI can be found through leveraging the biggest strengths of the industry relative to the international market and also by minimizing the impacts of the weakest areas of the local industr y relative to the international market.
60 Figure 2 7. Detailed PFFM summarizing the Jamaican coffee industry at the local and international level. The biggest advantage the JCI has is its stronger bargaining power relative to most other coffee producing countries. The shift in focus over the past 20 years has moved from paying for the material attributes of coffee quality to paying for the symbolism and in person service attributes such as branding, packaging and sustainability content (Daviron and Ponte quality of their coffee and the symbolic attributes that it entails has borne great fruit over the last five decades and served as a hedge against the concentration of buyer power in the mainstream coffee marke t. Consequently, though Jamaica produces less than 0.1%
61 the decades plus the relative scarcity of the product has allowed the JCI to exploit its emphasis on product diff erentiation. However, with the increase number of entrants into what was once the niche of specialty and premium coffee means that the JCI can no longer rely solely on re putation. The decline in export earnings from US$22.3 million in 2010 to US$17.9 milli on in 2012 and contribution to the Jamaican economy from 1.63% 3 in 2010 to 1.02% in 2012 (Bank of Jamaica 2014) reflect this. Rivalry is high in the industry and stakeholders have to find creative means of promoting JBM coffee in an increasingly crowded ma rket. This would also serve to reduce the growing bargaining power of buyers who have a wider selection of high end coffee to choose from, whether as roasters, retailers or coffee drinkers. As noted by Magretta (2012, 41 42), powerful buyers will force pri ces down, demand more value from the product even at the lower prices, resultin g in more value for themselves. A key component in marketing JBM coffee is establishing the brand in emerging markets. The ICO (2014) noted that emerging markets (mainly in East ern Europe, China and India) had the highest annual growth rate in coffee consumption, followed by increased domestic consumption in producing nations. It is expected that this trend will continue for the next five to ten years as those economies become in creasingly affluent. What this means for the JCI is that even if only modestly higher prices can be initially obtained in these newer markets, the increase in demand in one will limit the supply to all other markets, opening up the opportunity for Jamaican coffee companies to charge 3 Although a relatively small contributor to the overall economy, coffee is still a major export commodi ty. The largest agricultural export, sugar, contributed 3.22% to the Jamaican economy in 2010.
62 higher prices. Such an approach to managing supply and demand is essential if the JCI wishes to rise above the melee of specialty coffee competition. One of the most popular approaches to accrue value and bargaining power to the producing country is to increase consumer producer connectivity and promote transparency (Daviron and Ponte 2005). Having already established a well known indicator of geographic origin, it can be argued that if producers in the JCI embed symbolic content in their coffee the consumer needs to know what the content is, value it and pay for it (Daviron and Ponte 2005, 224). This will be critical particularly when working in the emerging markets. A brand i s essentially a relationship, a guarantee of a certain quality, a potentially unique connection to the individual. Coffee dealers will have to market the and to the weal increasing their bargaining power. However, this will take some time, as highlighted by Bertoldi, Giachino and Silva (2012) recounting the experience of the Lavazza blish their brand in the emerging Indian coffee market. Some local coffee stakeholders have already engaged in coffee tours, promoting the story of JBM coffee and other attempts to bring the consumer closer to the symbolic qualities embedded in the coffee. Product differentiation is the state of affairs in an industry that results from both supply (i.e., differences in what firms choose to produce or are capable of producing ( Hunt 2011, 75)). Therefore, a firm engaged in monopolistic competition has market
63 power because it has relatively few competitors. As the JCI pursues various marketing and differentiation strategies, it cannot forget the intra national dynamics which have a significant impact on the viability of future CA. It was noted previously that Jamaican coffee farmers receive more for their coffee than most producers around the world. However, these gains have steadily been eroded by rising production costs brought o n by a weak economy, a sliding currency and persistent production inefficiencies. This has resulted in declining coffee production and a domino effect on processing capacity and availability of coffee for export in its various forms. A greater exploration of these challenges will be done in the paper that follows. Suffice to say, stakeholders have to objectively assess their ability to profitably produce, process and sell their coffee within, and outside of the island. Because competition is dynamic, change from within to compete internationally is an essential component to ensuring to continuity of the JBM Conclusions and Recommendations No change can be imposed from the production side alone a fact made evident through the PFFM analysis of the JCI at the local and international level. As sustainable coffee initiatives become more mainstream, and raising the bar concerning the quality of coffee sold to consumers, it will become increasingly diff icult to market coffee based on quality alone. The global coffee value chain is extremely complex and trade offs are made at each step in establishing a (dys)functional system of commodity trade. A shift away from public to private control, consolidation o f various entities, the increased influence of international coffee companies in local production systems, declining farmer productivity due to increased input costs, soil marginalization and economies of scale and the ever changing demands of consumer of coffee (whether it be bean, ground or
64 beverage) all come together to determine to structure of the coffee industry and create implications for the bargaining power of stakeholders in the JCI. Neves et al. (2011) note that strategic planning should be marke t oriented, aimed at identifying and developing distinctive competencies, partnerships strategies, strong relationships with key strategic customers, with emphasis on market segmentation, use of consumer reports as well as a strategic focus on the benefits and services to consumers, improvement and continuous innovation, and especially in the selection of target markets and positioning. Little can be done about the threat of substitutes, the threat of new entrants, or the rivalry among existing competitors in the global coffee market, therefore the JCI should focus on improving their supplier bargaining power relative to that of the bargaining power of buyers. Because the desire for prestige and fine foods/drinks will always be there, the JCI needs remain f ocused on its target customer base wherever it appears, whether it remains in Japan or shifts to China, Russia India or any one of the other emerging markets. Supply management in the global coffee industry is at thing of the past. As a result, those who tend to succeed are the ones that have been best able to captivate the imaginations of buyers and consumers and navigate the current free trade paradigm. Jamaica has a product which has the potential to remain in the top echelons of the specialty coffee ma rket for years to come; however, the nation must develop economic, social and environmental standards to maintain the quality of the coffee it produces which can then be marketed to best take advantage of the current consumer demand for quality coffee that also has an intrinsic story. Furthermore, because of the
65 position JBM coffee competes in, they have a special challenge of not making their coffee too broadly or cheaply available lest it lose its prestigious status. As the relevant parties pursue the abo ve recommendations, the JCI should be able to leverage its current position to regaining some of the bargaining power it had lost in the global coffee industry over the last few years.
66 CHAPTER 3 THE CHALLENGES AND RESPONSES OF STAKEHOLDERS IN THE J AMAICAN COFFEE INDUSTRY Overview the Jamaica Blue Mountain (JBM) coffee. An Arabica varietal cherished as a mild, smooth coffee with hints of chocolate (Espresso & Coffee Guide 2011) the high demand and corresponding high prices for this premium coffee over the past several decades reflects the competitive advantage (CA) held by JBM. Since the mid 1800s the specialty market for coffee has catered to the tastes of coffee connoisseurs the world over. The JBM coffee was highly coveted by their colonial masters and almost all exports of the coffee went to Great Britain from 1865 to the early 20 th century (Gordon 2009). Other famous single origin coffees such as Hawaiian Kona or Kenya AA a lso found ready markets among those willing to pay higher prices for the product. The distinctive flavor profiles, exotic locales and limited supply distinguished these premium coffees from the mainstream, m ass produced coffees. Increased emphasis on econo mic globalization and the widespread development of the specialty coffee market in the 1980s, particularly in the major consumer markets of the Unites States and Western Europe provided an attractive development option to smaller coffee producing nations u nable to compete with production giants such as Brazil and Indonesia. In the United States, the emergence of the young urban specialty coffee industry in that coun try (Pendergrast 1999). The increasingly open trade markets and formation of specialty trade groups enabled a greater quantity of high quality coffee beans from around the world to enter various markets.
67 This market expansion benefited the Jamaican coffee industry (JCI) to some degree as they were able to expand into the US and European market. However, as consumers were presented with an increasing number of drink options (Roseberry 1996), there has been a gradual decrease in demand for JBM coffee in the J markets of Japan and the United States. This has in turn reduced the viability of the livelihoods of thousands involved in the industry. Additionally, rising production costs, a slow economy and the increased regularity of hurricanes, droughts a nd disease over the past 10 years have pushed the industry towards what some stakeholders have termed a crisis (Gentles 2008, Jackson 2011, McFadden 2012, Serju 2012). The impact of the global recession in 2008 accelerated the decline in export earnings fr om US$22.3 million in 2010 to US$17.9 million in 2012 (Bank of Jamaica 2014). As uncertainty arose among producers, production steadily declined. All stakeholders, from producers to processors, dealers to regulators have had to re examine the industry and how best to regain the competitive export advantage they once enjoyed. The PFFM analyses conducted in the previous paper showed that there a complex dynamics in the local coffee industry. This paper takes a deeper look at the challenges that are faced by s takeholders at the intra national level and how have been undermining their CA. This paper also aims to uncover the different ways in which the different stakeholder groups have been responding to these challenges. The hypothesis proposed is that rising pr oduction and maintenance costs are the major challenge to improving CA faced by all stakeholders within the JCI. In order to test this hypothesis, a qualitative analysis of interviews with coffee farmers, processors, dealers and regulators
68 was undertaken. These interviews were conducted during 2012 and 2013 summer field seasons of this research project. This paper first overviews some of the issues being faced in specialty agriculture around the world. This is followed by a detailed presentation of the rece nt trends and characteristics of the JCI; research design, and data analysis methods. The findings of this analysis are presented, followed by a discussion of these findings. Finally, the paper puts forward a number of recommendations focused on securing t he future of the local industry. Although numerous studies have shown that that those involved in the specialty coffee sector receive greater returns, especially coffee growers and others at the production end of the value chain (Raynolds 2002, Teuber 2010 Weber 2011), relatively little has been published on how participants maintain these gains once established. As supplies and consumption of these coffees approach saturation point, the findings of this paper will be integrated with the conclusions of pap er one to provide a way forward on improving the CA of the JCI at the local and international level. Additionally this paper should prove instructive to those seeking to sustain a competitive advantage in an increasingly mature specialty coffee market. Cha llenges in Specialty Agriculture Suppliers of agricultural products face the challenge of receiving the lowest profit margin in the coffee value chain (Daviron and Ponte 2005). The possibility of obtaining higher profits through specialization has therefor e attracted members of most agricultural sectors to promote a specialty chocolate, sugar, coffee, tea and a number of other products. Such an approach seeks to increase the bargaining power of suppliers and reduce the bargaining power of buyers (see Porter 2).
69 Recall that CA is either based on a cost advantage (production at a lower cost than rivals), by differentiation (creation of a product that is perceived as being unique on an industry wide basis) or both (Huggins and Iz ushi 2011). Or as stated by Porter than its competitors for equivalent benefits or the provision of unique benefits that more strategy should lead to greater than average returns in the industry one is involved in. In other words, when firms (such as those in the JCI) sustain profits that are greater than average for the industry then they have a competitive advantage over its r ivals (such as other premium coffee producers). Porter also states that maintaining these advantages requires the cumulative impact of many discrete activities ranging from production of the raw materials to the delivery of the end product to the consumer i.e. the value chain However, as highlighted below, there are several challenges to maintaining these advantages. Bacon (2005) notes that most coffee producers live in poverty and manage agro lly diverse regions. The ICO has reported frequently declining prices for coffee and slow growth in consumption (eg. ICO 2013c). Bacon (2005) notes two tendencies are eliminating the previous competitive advantages held by countries producing Arabica coffe e varieties Brazil increasing its global dominance of producing Arabica coffees and ability of many roasting companies to substitute between Robusta and Arabica beans in their blends, decreasing the price differential between the two types of coffee. Fur thermore producers face the challenge of increasing incidences of pest such as the coffee berry
70 borer (Jaramillo et al. 2011) and restrictions in production areas due to climate change (Haggar and Schepp 2012, International Center for Tropical Agriculture 2012). Another development in the global coffee industry was the increased flexibility and more direct market access attained by producers and exporters with the collapse of the international coffee agreement (ICA). Bacon (2005) noted that large scale tran snational trade and roasting companies were quick to enter the spaces that opened and rapidly gained majority control of the value added segment of the coffee market. This has resulted in declines in the share of revenue to producers and producing countrie s and a corresponding enrichment of those involved in value added enterprises in or for consuming countries (Talbot 1997, Daviron and Pointe 2005). The previous paper highlighted the high threat of new entrant in the specialty coffee market. Neves, Kakaki and Trombin (2011) reemphasize this in their analysis of the Caf do Cerrado region in Brazil. They observed that there was low differentiation of Brazilian coffees and few barriers to entry. Coupled with the high bargaining power due to the high concentra tion of producers, the opportunities to succeed in the specialty coffee market become very limited. However, increasing consumer awareness regarding issues of quality, taste, health, and environment have increased the demand for specialty and eco labeled coffees. These offer price premiums but still comprise a relatively small portion of the global coffee market. The largest market for specialty coffees is the United States where the specialty or gourmet market segment represents 17% of US coffee imports b y volume and 40% of the retail market by value (Giovannucci 2001). Two of the major specialty movements, Fair Trade and organic have grown steadily over the last 20
71 years. Pierrot, Giovannucci and Kasterine (2010) estimated that 8% of the global trade in g reen coffee was certified as sustainable in 2009. But, as Bacon (2005) and Daviron and Ponte (2005) point out, the promise of re embedding trade into a social value system is matched by the challenges and contradictions involved in attempts to infuse 21 st century capitalism with social and ecological justice and the risk of saturating this relatively small market. Data and Methods Study Area Coffee in Jamaica is mostly grown in the mountainous regions of the island and the highest quality coffee is grown i n the Blue Mountains in eastern Jamaica. Figure 3 1. Major coffee growing regions in Jamaica. The Jamaica Blue Mountain (JBM) coffee region is highlighted in blue and the Non Blue Mountain (NBM) coffee regions are shown in brown.
72 As market demands rose for JBM coffee, production began falling in the NBM regions in the 1900s and as shown in Figure 3 2 comprises less than 25% of national coffee production. Figure 3 2. Coffee production in Jamaica between 1982 and 2013. The rise in the production of JBM coffee accompanied the decline in NBM coffee. Since the early 2000s, local coffee farmers began to see a general stagnation in prices received due to the growing competition from other premium, specialty and eco friendly coffees (such as Fair Trade an d Utz Kapeh brands, and organic products), increasing production costs and adverse weather conditions (Figure 3 3). A spate of hurricanes between 2004 and 2008 which destroyed thousands of trees across the island alongside disease outbreaks have caused hun dreds of coffee farmers to leave the industry, resulting in the production declines seen in Figure 3 2. Several others farmers have found it more difficult to make a living from monoculture and have sought to diversify pro duction to include other crops. 0.00 100,000.00 200,000.00 300,000.00 400,000.00 500,000.00 600,000.00 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Production JBM (60 lb. boxes) Production NBM (60 lb. boxes) Coffee Production in Jamaica 1982 2013 (60 lb. boxes)
73 Th e global recession in 2008 further softened demand for JBM coffee as consumers reduced purchases. Japanese companies, the dominant purchasers of the coffee have shifted from advance purchases of Jamaican coffee to just in time purchasing in order to manage the slowdown in sales. Figure 3 3. Prices paid to coffee farmers in the JBM and NBM (lowland) regions for a standard 60 lb. box of coffee from 1982 to 2012 (in 2012 US dollars). Preliminary fieldwork in the summer of 2011 found that although the (CIB) explored other markets while seeking to maintain market share in Japan, farmers uncertain about the future continued to exit this seemingly prestigious industry. This has resulted in production levels declining to levels not seen since the devastation of H urricane Gilbert in 1988. In order to gain a more complete understanding of the dynamics of the JCI, interviews were conducted with stakeholders involved in the production, processing, roasting, exporting and regulation of the JCI (Figure 3 4). There are s everal stakeholders covered in this paper the small, medium and large farmers, coffee 0.00 10.00 20.00 30.00 40.00 50.00 60.00 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Price per box lowland (US$) Price per box -JBM (US$) Prices per 60 lb. box of coffee in Jamaica: 1982 2012
74 processors, and dealers (roasters and/or exporters of coffee). It is important to note that in Jamaica, most dealers are also coffee farmers. These farmer dealers are t ypically the largest producers of coffee which enables them the vertically integrate up the value chain. Figure 3 4. Locations where field interviews took place in the 2012 and 2013 summer field seasons. Research Design Th e knowledge gained from this research is aimed to increase the bargaining power of producers of specialty coffee in small island developing states (SIDS). Although most specialty coffee producers face the similar challenges of an increasingly competitive ma increasing consumer saturation of the market, SIDS possess even more limited coping
75 resources, not the least of which include land and other natural resources. The accessible populati on however, was the various stakeholders in the JCI. These are the people and landscape on which this research is situated. The restrictions imposed by the relatively short field seasons and the breadth of information desired led to the selection of the se mi structured interview as the primary data collection mechanism. This data was supplemented by archival data collected from the CIB, the Statistical Institute of Jamaica (STATIN) a nd a variety of online sources. Research Instrument The principal research instrument for this paper was a semi structured interview form. A semi structured interview is very useful for collecting this detailed and higher quality information than with observation (challenges of misinterpretation), focus groups (relatively high di fficulty to get farmers together and also less useful to get varied, in depth perspectives) or using a questionnaire (less detailed information). The semi structured interview is flexible, but it is also controlled (Burgess, 1982) for a relatively smooth p rogression; yet it also leaves room for unexpected topics or new ideas to be taken into account and explored and for the interview to follow the flow of the conversation. This flexibility allows for variability among participants to be identified. Ignoring variability can result in a very inaccurate understanding of a situation and can lead one to conclude that the researcher can design interventions for the "average" farmer and that the recipients need only to adopt them passi vely (Beebe, 1995). Mighty (20 10) highlighted that a semi structured interview is the most effective means of gleaning information from a wide cross section of stakeholders of with varying interests. Using this data collection method, farmers, manufacturers, regulators, government offi cials and persons are given the opportunity to share information within a
76 fairly structured framework but given adequate space to expound on topics of interest as well as introduce ideas, issues or concepts not covered by the interviewer. They are easily a daptable and are a good compromise between the more rigid questionnaire sheet and the unstructured interview. Additionally, the interview can be conducted orally. Many farmers have varying levels of literacy and would sometimes be hesitant and/or unwilling to fill out a qu estionnaire or interview form. The questions in the semi structured interview form were all open ended with probes. Each question led to a discussion of the challenges that were experienced or observed in the JCI and were arranged in such a way that new topics could readily be introduced. A sample interview form can be seen in Appendix A Data Collection Interview data was collected over the 2012 and 2013 field season with the aim of obtaining a representative sample of farmers, processors, dealers and regulators that would showcase the range of challenges and responses faced by stakeholders. The initial sampling framework to be used was a combination of snowball and quota sampling. A number of coffee farmers, proportional to their distribu tion in the JBM and NBM regions were to be randomly selected to be interviewed and stakeholders representing coffee processors, dealers and the CIB would be interviewed via referrals from members within the coffee community. However, once in the field, it became apparent that quota sampling would not be viable as there was no established list of coffee farmers to establish quotas and do random sampling. The most reliable means of conducting interviews with farmers proved to be accompanying CIB extension off icers on their field visits and interviewing those farmers who agreed to participate in the research. Thus the sampling of farmers, particularly small and medium scale farmers
77 became more of a convenience sample rather than a quota sample. Although this li mits the external validity of the sample, the researcher does not believe it greatly impacted the objective of the research. As will be revealed in the data analysis, a saturation point was reached in the interviews where little to no new information perti nent to the resear ch question was being obtained. Sampling of the coffee processors, coffee roasters and coffee dealers also became more of a convenience sample. Throughout the course of data collection, it became apparent that in order to truly capture th e range of issues, it would be best to interview as many stakeholders as possible. This was doubly important because of the small number of processors, roasters and dealers that controlled a large proportion of the industry. All but one of the main dealers all the major coffee processors and the majority of stakeholders involved in the stages of coffee production beyond cultivation were interviewed and this greatly strengthens the external validity of this research. Data Analysis Qualitative analysis techn iques were used to identify the common themes across the interviews and thus identify the major challenges and responses by stakeholders within the JCI. The separation of interview transcripts by common themes is one of the most widely used means of conduc ting analyses. For example, Papadopoulos et al. (2002) examined the utility of validation of data collected in interviews through synthesizing findings by themes. Bryman (2001) also makes the point that themes enable you to code the information gathered an d use computer software to find patterns or trends between interviewees. The analysis steps to be followed will be similar to those laid out by Patton (2002), Northcutt and McCoy (2004), Thomas (2006) and
78 Swisher (2011). Every few interviews and also at th e end of the data collection process, four kinds of analysis were conducted (though not necessarily in the order listed): Finding similarities among respondents through identifying common themes to enable the creation of categories, Identifying linkages between these categories and eventually creating some sort of typology related to the categories identified, Understanding and explaining the relationships that had been identified whether through seeking synthesis or understanding differences in the conte xt of the research question, Examination of outliers to see if they pointed to themes or questions that the researcher failed to consider in the research design. After digitizing the transcripts of each interview for easy data archiving and retrieval, the next step was to identify topics that arose in each interview. A matrix of each topic and their recurrence in each interview was created to enable the four analyses listed above to be carried out. As the thematic analysis progressed, the topics were group ed into themes and the themes abstracted into categories. The main categories identified are shown in Table 3 1. The complete table can be found in Appendix B. This hierarchy synthesized dozens of pages of interview transcripts into a format that revealed the various challenges and responses. The remainder of the paper will discuss the results of the analysis, discussion of the findings and their implications for the JCI at the intra national and international level
79 Table 3 1. Categories and common th emes of the challenges and responses of all JCI stakeholders derived from the qualitative analysis steps. Category Common Theme Coffee production economics: production costs, prices received, payment structure Production costs outstripping money from coffee; low prices for coffee; desire for better prices for their coffee Resulting domino effects leading to farmers leaving coffee farming: payments delays, high costs of production Insufficient income from growing coffee to provide a stable income; the chain reaction caused delays in payments for coffee Man shall not live by coffee alone: The need to diversify away from coffee to survive + other coping strategies Growing more than just coffee to survive Weather, climate and the JCI: influence of climate change on weather and pests/diseases? Impacts of weather/natural disasters; the possible influence of climate change on pest / disease management Managing pest and diseases in the JCI Impacts of coffee berry borer and other pests / diseases Survi val of the fittest: only the strongest coffee farmers remain Only the committed farmers remain; the challenge of surviving as a coffee farmer; competition among Jamaican coffee dealers NBM coffee: extra challenges and the role of the co ops The demise of NBM coffee; the experience of being part of a co operative group The dynamics of the local coffee market Pessimistic view of the future of coffee; the experience of being part of a co operative group; farmers helping each other survive; competition among Jamaican coffee dealers; interaction and information flow among JCI stakeholders; Special needs of the vulnerable: women farmers, especially in farm labor The Jamaica Japan connection The dynamic of the Japanese coffee market Lessons learnt from the 2008 recession The impacts of the recession on the local and/or global coffee industry The need for effective marketing strategies and product diversification The need for product diversification The need for market diversification The need for market divers ification The privatization of the JCI the Wallenford and Mavis Bank divestment The restructuring of operations in the JCI: divestment Increasing production efficiency: vertical integration The need for production efficiency; Streamlining the operations of the JCI from production to export Stakeholder dynamics: farmer processor linkages
80 Table 3 1. Continued. Category Common Theme Whither the government?: Improving the effectiveness of the CIB and other government support The role of the CIB: is it doing enough?; The apparent absence of government assistance; perceived bias of the CIB towards larger farmers The dark side of the JCI: corruption, politics and mismanagement The role of politics in the operations of the JCI; mistrust and comp etition among farmers Making smarter, more efficient stakeholders in the JCI Best practices in coffee production + finding ways to deal with farm issues; the need for smart marketing decisions / approaches to marketing Presentation of Findings To obtain a comprehensive understanding of the various challenges that are faced by stakeholders and the responses that they have been making to those challenges, semi structured interviews were conducted across the island of Jamaica over two field seasons : between June and August 2012 and June and August 2013. The coffee year in Jamaica starts in August and ends in July. Thus, the timing of the interviews allowed participants to reflect on the various events of the concluding production year and assess the m with greater clarity than if the interviews were being conducted in the midst of the production period. A total of 57 interviews were completed 39 in the summer of 2012 and 18 in the summer of 2013. The decrease in the number of interviews in 2013 was a result of reaching the saturation point 4 among farmers and the limited number of processors, roasters, dealers and regulatory bodies available to be interviewed. Figures 3 5 to 3 7 below summarize the characteristics of the interviewees. 4 The saturation point can be thought of as the point in the data collection process where no new information is being gathered. Continued data collection beyond the saturation point tends to yield is generally
81 Although general ly identified as farmers, processors, dealers and regulators, it is important to note that these categories are not mutually exclusive in Jamaica. Strictly speaking, a coffee farmer is primarily engaged in the production and sale of his or her coffee cherr ies. A coffee processor is focused on the chain of activities that change the coffee cherries to dried green coffee beans; a coffee roaster then takes those beans and roasts them for the consumer market; and finally a coffee dealer in Jamaica has the licen se to sell both the green bean and roasted coffee to local and international markets. In practice there is often some overlap: most of the large coffee farmers have vertically integrated and are involved in some combination of processing, roasting and expo rting coffee. All coffee processors in Jamaica are also dealers in green bean and Essentially, the only stakeholders not involved in multiple levels of the value chain are th e small scale coffee farmers and the implications of this will be discussed later in the paper. All told, 50 farmers out of between 6000 8000 farmers; 12 of the 14 active dealers and roasters and the three major coffee processors were interviewed across th e two field seasons Most of the interviews carried out during the field season took place in the Kingston and St. Andrew Metropolitan Area (KMA) of Jamaica (Figure 3 5). The KMA comprises the capital city and its immediate environs. As such, it is the pri me location for the offices of almost all the coffee dealers, roasters and the CIB. The offices of many of the large coffee farmers (or their related companies) are also located in the capital. Nine of the 12 dealers and all but one of the coffee processor s interviewed were located in the KMA. The interviews that took place in the parishes of Portland and St. Andrew
82 were all with JBM farmers while those in the remaining parishes were NBM farmers. Interestingly, the interviewees located in St. Thomas and Wes tmorela nd were both large NBM farmers. Figure 3 5. Distribution of field interviews by parish Every effort was made to interview stakeholders in person and this was done with 80% of the research participants (Figure 3 6). Where this was not possible, interviews were conducted over the telephone following the same interview format. Figure 3 6. Semi structured interview by format 0 5 10 15 20 25 30 Field Interview Locations 5 45 6 1 Types of Semi Structured Interviews Telephone In person: Formal In person: Informal Other
83 Most of the in person interviews closely followed the formal instrument; however there were a few cases where a more infor mal setting was appropriate to obtain the desired information. In one such instance, the interview morphed into a group being faced by the coffee industry in their area Figure 3 7. Involvement of interviewees in the Jamaican Coffee Industry. Most coffee stakeholders were involved in the production of coffee. As with most agricultural commodities, there are significantly fewer players involved as one moves up the value chain. Although Figure 3 7 shows that over 80% of the interviewees were farmers, it is important to keep in mind the overlap in each segment amongst several of the interviewees. After the interview transcripts were digitized, they were coded by topic and t hese topics were subsequently abstracted into themes and finally categories. The results shown in Table 1 displays the final categories created from the data analysis of the interviews as well as the themes and topics that fall under each category. 0.00% 20.00% 40.00% 60.00% 80.00% 100.00% Farmer Total Processor Dealer Roaster Regulator Other Interviewee Involvement in the Jamaican Coffee Industry
84 Farmers Fifty of the 57 interviewees were involved in coffee production. According to the hectares (10 acres). Thus for the purpose of this analysis, small farmers were defined as those cultivating less than 4 acres of coffee, medium farmers as those cultivating between 4 and 20 hectares and large farmers were defined as those cultivating over 20 hectares. The high proportion of small farmers is seen in Figure 3 8. There was a si milar distribution of farm sizes in and out of the JBM coffee region; in fact over half of the small farmers interviewed cultivated less than 1 hectare (2.5 acres). Though there are fewer medium and large farmers, they are concentrated in the JBM coffee re gion Figure 3 8. Coffee farmer interviewees by farm size and production region 0 5 10 15 20 under 4 hectares 4-20 hectares over 20 hectares under 4 hectares 4-20 hectares over 20 hectares Small Medium Large Small Medium Large JBM Farmer NBM Farmer Coffee Farmers by Farm Size and Region
85 Figure 3 9. Top 10 interview topics raised by coffee farmers in the JCI The most prominent categories among farmers focused on the economics of coffee production production costs, prices received, payment structure payments delays, and how these have resulted in many farmers leaving coffee production (Figure 3 9). A secondary set of challenges faced by farmers revolved around the pests and diseases that impact coffee, foremost among them being the coffee berry borer ( Hypothenemus hampei ) as well as the impact of hurricanes and droughts. For the farmers that remained in the JCI, the overwhelming response was to pursue additional endeavors whether by growing other crops, raising livestock or engaging in other economic activities. Despite this diversification, the general consensus, especially
86 among smaller farmers was that it was still a struggle for survival, esp ecially in light of the diminished capacity of the CIB to provide material assistance and technical advice due to funding constraints. Processors Four interviewees were involved in the processing of coffee in the JCI. Unlike the n issues, the processors focused on the value added components of the industry (Figure 3 10). Figure 3 10. Top 10 interview topics raised by coffee processors in the JCI The divestment of the two largest government owned processors in the island Walle nford Coffee Company (WCC) and Mavis Bank Coffee Factory (MBCF) between 2008 and 2013 resulted in some measure of uncertainty among coffee producers and 0 1 2 3 4 5 Top 10 Interview Topics Among Coffee Processors
87 dealers. The transfer of these companies to private ownership was reported to have a noted impact on th e local coffee trade. Beyond the shores of Jamaica, the 2008 recession and the consequent impacts on the major market of Japan and increased competition from other premium coffees were seen as the most crucial challenges. As a result, the need for effectiv e marketing strategies (market diversification), product diversification and increasing production efficiency through vertical integration emerged as primary responses to those challenges. Pests and diseases were seen as challenges as it affected the quali ty of coffee to be processed. Dealers Since some coffee dealers are farmers and processors, several of the important categories in the previous sections are also seen in this section (Figure 3 11). Figure 3 11. Top 10 interview topics raised by coffee d ealers in the JCI
88 Seven of the 12 dealers interviewed highlighted the impact of the 2008 recession as the biggest challenge to their operations, especially their ability on the declines in demand for JBM coffee and the decreases in the prices charged in or der to maintain major market for JBM coffee. The recession hit Japan hard and as their purchasing power decreased, dealers reported that lower prices were offered in order t o maintain the loyalty of their primary consumer. A number of challenges are embedded in the local coffee trade (Appendix B). The most significant topics for dealers were the changes in regulations regarding coffee sales (especially the more stringent colo r grading scheme for beans to be exported) implemented by the CIB and the decline in coffee quality across the island which in turn affected the price and volume of JBM and NBM coffee on the international market. Along with the uncertainty caused by the di vestment of WCC and MBCF, the dealers interviewed also saw the opportunity to expand operations fill gaps that may be left by others. In fact, market diversification was seen as the most appropriate response in the face of the challenges. Product diversifi cation, whether by investing in specialty certification or delving into coffee related value added products was often a related response. Efficiency was a key theme among several dealers: several indicated vertical integration into processing or farming as a means to maximize profitability as well as ensure consistent quality of beans sold internationally. Regulators As overseers of the JCI, the four interviewees from the CIB highlighted challenges and responses related to the three groups that make up Jama value chain (Figure 3 12).
89 Figure 3 12. Top 10 interview topics raised by representatives from the Coffee Industry Board of Jamaica All four representatives recognized the challenges imposed by the high cost of material inputs and all but o ne also discussed the high cost of labor and the resulting impact on farmer viability. The diversification away from coffee was also recognized as a threat to the viability of coffee production. The CIB personnel discussed the role decreased prices and sal es stemming from the global recession and its implications for the dealers. One challenge unique to these interviewees is the challenges the CIB faces in carrying out its mandate of maintaining the high quality of coffee exports, the sustainable developmen t of the local industry and the protection of the JBM trademark around the world. Between wage freezes, employee layoffs, government bureaucracy and restricted funding, the regulatory agency has faced severe limitations. One strategy
90 to increase their effi ciency has been to establish close working relationships with farmers and processors to insure the quality of coffee produced. This included encouraging farmers to adopt best practices in cultivation and pest management and facilitating product and market diversificat ion by processors and dealers. Discussion of Findings The proposed hypothesis at the beginning of this study was that rising production and maintenance costs are the major challenge to the competitive advantage of the JCI. Based on the data analysis, this certainly seems to be the case primarily among farmers but less so among processors, dealers and the regulatory agency Farmers Farmers in and out of the Blue Mountain coffee region have borne the brunt of the downturn in the industry. They have also been among the last to receive the benefits of the recent increase in demand for Jamaican coffee. This is especially true for the small farmer. The most significant challenge that farmers face is the increasing gap between production costs and th e income received from coffee. The global economic recession in 2008 led to lower prices and frequent payment delays from processors and dealers. Although prices have rallied to some degree, the price per 60 lb. box of coffee has not been able to keep up w ith the already high costs of the various inputs for producing coffee. The increase in the national minimum wage has made labor more expensive. The depreciation of the Jamaican dollar has made imported fertilizers, herbicides and other chemical inputs more costly; and the steep hillsides limit the application of labor saving technologies. For many farmers (including all the small farmers interviewed), it is no longer a case of a small profit margin, growing coffee essentially means losing money. This is esp ecially true in the NBM regions where
91 farmers may receive as little as 40% of the price JBM farmers receive while having similar production costs (Figure 3 3). Consequently, many farmers have ceased maintaining their coffee and focus on reaping what they c an get from the trees. The recurrence of the coffee berry borer and other pests and diseases and the damage caused by extreme weather in the form of hurricanes and droughts serve to further tighten the vice on the viability of coffee production. The conseq uent lack of generational replacement and concern about the future of coffee in many traditional coffee growing areas is therefore not surprising. The bleak perception of the crop has discouraged young people from entering coffee (and farming in general) a s they seek more lucrative employment elsewhere. Crop diversification among the farmers that do remain in coffee was a constant theme in the interviews. Farmers grew everything from tree crops (like bananas and coconuts) to cash crops (such as tomatoes and peppers), while a few undertook animal husbandry, all with the aim of spreading their risk and ensuring a steady income from their farms. The larger expand into exp orting coffee, they can use their farms as loss leaders for value added production. This allows them obtain much better returns as they are able to take advantage of relative ec onomies of scale in production. Whether small, medium or large, a critical factor highlighted in the interviews was the role of EFFICIENCY (productivity) in reaping benefits from coffee. And this is a big issue farmers in Jamaica cannot get close to the number of boxes per hectare that a much more manageable land in many respects. Combined with the diminished capacity
92 of the CIB to provide technical and material support, farmers have to take a hard look at their place in the industry and either do what they can to increase their knowledge about increasing coffee productivity to improve their ability to be more profitable or else exit production. That being said, larger farmers are better able to improve t heir efficiency than small farmers due to their ability to access the financial resources (personal funds or loans) needed to attain the higher outputs per hectare on their farms. The more limited collateral that a small farmer has restricts their access t o such financing. Additionally, very small farmers (less than a hectare) cannot realistically be expected to get the same results as the farmers with hundreds hectares. Processors The intermediaries between the farmer and the dealer, the coffee processor t urns the coffee cherry to the dried bean ready for export and/or roasting. In response to the decreased demand for JBM coffee, most processors cash flow problems that led to payment delays and lower prices offered to farmers. As market conditions improved, these prices increased but between 2008 and the times the interviews were conducted, hundreds of farmers had ceased production. The divestment of WCC and MCBF also gave farmers pause, all of which led to record low production levels by the 2012 2013 coffe e year. Therefore processors had to pay more per box of coffee and pay farmers more promptly. Though competition increased for the limited supply of coffee, it was observed that there was a decline in quality of the coffee cherries due to farmers being les s able to properly care for their coffee. Thus farmer assistance programs (which provided growers with favorable prices for inputs in exchange for a guarantee on the crop) were revitalized and one processor even went as far as providing a variety of exten sion services to the farmers they worked with. The coffee processors interviewed
93 were often involved with other value added endeavors such as creating flavored coffee and different grades of coffee from a blend of JBM and NBM to the highest quality JBM bea ns. The pursuit of additional markets for JBM coffee, developing direct sales mechanisms and integrating the Rainforest Alliance specialty mark in the JBM product were highlighted as some of their coping mechanisms. Dealers After decades of depending on th e Japanese market, coffee dealers have had to focus heavily on market and product diversification. Although, Japan is still the largest purchaser of JBM coffee, demand has softened over the last few years due to the recession and the core customers of baby boomers passing away. This has led to increased inventory of JBM coffee amongst Japanese coffee importers. Therefore dealers have sought to expand into the United States, Europe and a few Asian markets (notably China) in an effort to both increase sales a nd decrease their dependence on the Japanese market. The local coffee market has also suffered. Because there is no significant coffee drinking culture in Jamaica, most (roasted) coffee sales target hotels, gift shops and other sales outlets involve in the tourism sector. The economic recession of 2008 was noted to have severely impacted the purchasing power of visitors, resulting in a flat market for dealers. This too has forced dealers to diversify their product offerings and sales locations. The competit ion for coffee amongst processors takes on an added dimension among the dealers. Declines in production and an increased demand for primarily JBM beans have led to a relatively scarcity of coffee. Dealers that process coffee have had to offer better prices to the farmers who have coffee for sale (especially those that have JBM coffee) and be more prompt with their payments in order to secure needed
94 inventory. For dealers that purchase processed beans, the increased price paid by processors is passed on to t hem, thus decreasing their profit margin. Additionally, the on the Wallenford Coffee Company poses an interesting scenario in terms of competition for local coffee and a n incentive for producers to supply this demand. This has led to optimism among many stakeholders although this was more notable among dealers than the farmers (since making a profit from growing coffee is more difficult than from bu ying and marketing the coffee). The increased costs of competing internationally and falling profit margins have led to an increased desire for more coffee professionals and business people to be integrated in the oversight of the industry, especially in the board of directors o f the CIB. There have been a number of conceptual and political issues that have played out in the industry over the last 20 years that were often narrowed down to seeking short term gains at the expense of long term viability. Probably the thorniest of th e issues facing dealers, this challenge is also one of the most crucial to address as it governs whether or not the island can regain its status of Regulators Although the CIB recognizes the debilitating impact of high input costs and the strong competition on the international coffee market, there is little they can do beside encouraging best practices to maximize production efficiency and facilitate the ability of processors and dealers to diversify their sales base. A numb er of farmers and dealers interviewed charged the CIB with mismanagement and inefficiency in a number of areas from the limited provision of farm inputs, not clamping down on coffee imports to claims of favoritism towards the largest stakeholders in the in
95 facing severe fiscal challenges and subject to political influence that has significantly hampered the effectiveness of the regulatory agency. Since becoming an independent regulator is highly unlikely, the CIB has to do th e best it can with what it has. One way they have done this is trademark protection of the JBM brand and its associated geographic indicator. Because of the prestige a ssociated with JBM coffee, it attracts several imitators and it is the mandate of the board to reduce such incidents. In the wake of the economic recession, the CIB has also focused efforts on promoting the brand Jamaica in subsequent to the Despite the decreased resources, the CIB appears to have made notable efforts to allow the most efficient stakeholders to succeed but this comes at a price. International competition in the specialty coffee market have forced the CIB imposed limits on the price increases that can be granted if it wishes to retain its customer base; the CIB also works closely with its most productive sta keholders which has meant that smaller farmers tend to be ignored unless they too are productive. Ultimately, the regulatory agency has to maximize the returns on its resources and thus farmers, processors and dealers have to step up to the plate if it wis hes to maintain its competitive advantage. Going Forward Conclusions and Recommendations The hypothesis proposed is that rising production and maintenance costs are the major challenge to improving CA faced by all stakeholders within the JCI proved to be false. While these costs were the most important for farmers, processors and dealers were more concerned with local and international markets as their major challenge, while the regulatory agency had the challenge of catering to the needs of the various
96 s takeholders addressing the rising costs of production, declines in production and alleviating the impact of the global recession on the JCI. Despite the variability of the challenges, the responses of each stakeholder group all point to maintaining their current CA. The desire for prestige and fine foods/drinks will always remain so long as humans inhabit the earth. In order to maintain its CA the JCI needs remain focused on product differentiation to retain relatively strong supplier bargaining power. Ma gretta (2012) notes that a key element of continuity is to understand your core value proposition and the major tradeoffs. The value proposition of JBM coffee is that the consumption of JBM coffee enjoins the consumer to the experience of drinking a coffee with a long and distinguished heritage and that this unique benefit is more than offset by the premium price that is paid. The observation by Bacon (2005) that roasting companies have trended to using Robusta and Arabica blends appears to herald a homogen ization of the specialty and premium coffee market and so stakeholders in the JCI must do their best to target potential customers in the emerging coffee consumption markets in China, India and Eastern Europe while coffee consumption is still relatively ne w and unique. Those with higher amounts of disposable income would be ideal is imp ortant to keep the essential focus of the industry in sight as the stakeholders in the JCI develop their adaptive strategies. Neves, Kalaki and Trobin (2011, 5) states: developing dist inctive competencies, partnerships strategies, strong relationships with key strategic customers, with emphasis on market segmentation, use of consumer reports as well as a strategic focus on the
97 benefits and services to consumers, improvement and continuo us innovation, and especially in the selection of target markets and positioning. Competitive advantage is focused on creating unique value, thus stakeholders must pursue strategies that do not conflict with its focus. With other long standing issues to de al with (such as the inequalities in resources, assistance and information available to small and large farmers; tensions between farmers, processors and dealers; and the high costs of producing coffee in Jamaica), the real point is that there is no longer room in the industry for the man, woman or company who simply aimed to impartial assessment of their future in coffee and either cut their losses and exit coffee or redo uble their efforts to be an efficient produce r and innovative marketer. At the Intra national Level 1. Farmers have to become more efficient. Smaller farmers will find it more difficult than larger farmers but all need either seek the best farm management pra ctices to increase the number of (good quality) boxes harvested per hectare (or acre) or make a decision to make coffee either a small part of their livelihood or exit coffee altogether. 2. While processing costs may increase, farmers will not be able to prod uce better coffee without a viable income stream. Processor should therefore offer a higher price per box of coffee. While this will be more expensive in the short term, better payments will allow farmers to produce higher quality coffee. Whatever means ma y be used to recoup these costs, retaining the most committed farmers is crucial to the future of the Jamaican coffee industry. 3. Dealers too should aim to improve payment for the coffee received from farmers. However, their main focus should be exploring ot her markets for Jamaican coffee. All dealers recognized this need but it is easy to become complacent in the near future as new sales channels are secured. Efforts to expand the value added JBM coffee offerings include flavored coffee, decaffeinated coffee and coffee under the Rainforest Alliance mark. Dealers also need to keep focused on the international market in which they compete and integrate relevant trends into their marketing approach (such as incorporating the story behind the coffee).
98 At the Inte rnational Level The global market for specialty and premium coffee is still fairly fragmented but the increased activity of multinational corporation in the sector and the threat of standardization for the sake of marketing purposes may lead to dilution of specialty coffee standards and increased homogeneity amongst the sectors offerings. Faced with low prices and increasing price volatility, more producing nations are seeking opportunities in the premium and specialty markets. Daviron and Ponte (2005, 18 8) notes that the quantity of certified (specialty) coffees is often above the market demand. As the market becomes more saturated, price premiums should naturally decline and consumption stagnate, decreasing the benefits to producing countries. Combined w ith the current downturn in the global economy, producing countries the world over (especially those growing Arabica coffee) have to come up with creative (and often painful) measures to combat the hegemony in consuming countries. 1. There is a strong need fo r the JCI to continue focusing on diversifying their market for JBM coffee. For decades the JCI sold between 70 85% of their coffee to Japan. This heavy dependence one a single market is a contributing factor to the current challenges being faced. By spr eading out their markets, they decrease the risk of having their terms dictated to them by the buyers. However, this does not mean that the JCI should neglect existing markets. Brand reputation takes years to build (and only days to lose!) and wherever JBM and other Jamaican coffees are sold, they need the market more than the market needs them due to the heavy competition even in the premium coffee segment of the global coffee industry. Another benefit of diversification is that if it is successful, there will be greater demand for Jamaican coffee and thus increased opportunities for production within the island. 2. The JCI needs to continue to let differentiation work in their favor. By continuing to promote the symbolic attributes of their flagship JBM coffe e, buyers of the coffee will be more willing to pay for the intrinsic qualities perceived to be embedded in it. Current market strategies include enclosing an appealing story about the origins of the coffee being sold, increasing the internet profile of th e coffee through websites, audio visual presentations etc. and opening up pathways for farm tours, coffee tastings and other activities that promote interactions with producers.
99 3. It is expected that the concentration of bargaining power among local buyers m ay lead to mergers and/or buyouts by larger dealers at the intra national level as smaller producers become less able to compete. As this happens, the regulators within the JCI must ensure that those that remain are able to be efficient in their production so that they will be better able to increase their profit margins when the coffee is then sold on the international market. This includes employing labor saving technology where applicable and increasing knowledge sharing among stakeholders. The JCI is at a cross roads in terms of how it maintains and increases its presence in the ever competitive specialty coffee market. This paper suggests that by focusing on increasing supplier bargaining power primarily through market diversification and producer effic iency, stakeholders will successfully negotiate the challenges currently being faced. It is hoped that by making these informed decisions, the JCI will be on the path to regaining the competitive advantage they once enjoyed in the global specialty coffee m arket.
100 CHAPTER 4 SITE SUITABILITY AND THE ANALYTIC HIERARCHY PROCESS: HOW GIS ANALYSIS CAN IMPROVE THE COMPETITIVE ADVANTAGE OF THE JAMAICAN COFFEE INDUSTRY Overview Agriculture has long played a pivotal role in economic development, serving as a pl atform for economic specialization. Apart from playing a vital role in achieving food security, it diversifies the economy and provides employment for billions of skilled and unskilled persons. However, it has been generally recognized that nations with a large proportion of their economies in agriculture enterprises such as coffee tend to be less developed. The island of Jamaica has transitioned from an agriculture based economy to one heavily dependent on the service industry, espe cially tourism. During t he 1800 s, it was discovered that the biophysical characteristics of eastern Jamaica lent itself to the production of high quality coffee. The export of coffee remained a small yet valuable industry even as the production of other agricultur al goods became less important. expensive coffees the Jamaica Blue Mountain (JBM) coffee. An Arabica varietal cherished as a mild, smooth coffee with hints of chocolate (Espresso & Coffee Guide 2011), this product has remained in the highest echelons of specialty coffees for the past several decades. With the expansion of the specialty coffee industry over the last 30 years and increasing costs of production, Jamaica has had to work on ret aining its customer base and seek ways to increase production efficiency. One avenue that has not been pursued in great detail is the application of geospatial technologies to aid location specific decision making.
101 This paper is a first attempt to model th e most suitable areas for growing coffee in the island of Jamaica It explores how this knowledge can be used to guide future development of the industry as it seeks to regain the presence it once had in the ever competitive specialty coffee market. Based on a multi criteria decision making (MCDM) approach, this paper uses the analytic hierarchical process (AHP) devised by Saaty (1990) to create a suitability model considering several biophysical (and one infrastructural) factors. The resulting model discus ses the optimal locations for coffee production in the island and how the output can be applied to guide industry strategy as Jamaica seeks to retain its competitive advantage (CA) a concept developed by Porter (1985).The results of this research will pr ovide all stakeholders in the JCI with valuable information that simplifies the assessment of the viability of currently cultivated lands and identification of lands that may be ideal for development. The model is also shown to be useful for guiding short, medium and long term decision making as the industry responds to market demands. On a broader scale, this suitability modeling exercise will highlight how GIS based MCDM can be used to enhance CA not just in coffee but all agricultural enterprises where s patial location is crucial for success. The Study Area Coffee is typically grown in several regions across the island of Jamaica (Figure 4 1). Located either in the JBM or non Blue Mountain (NBM) region, most coffee farms are located above 300 m on soils r ich in organic material. The famous JBM coffee is grown in the Blue Mountains. Located in eastern Jamaica, they form the longest mountain range in the island. With a maximum height of 2256 m, the range covers over 750 km 2 and it is at these higher elevatio ns that the best coffee is grown. JBM coffee is grown at elevations ranging from a low of 550 m up to 1600 m, with the best beans
102 growing between 1100 and 1600 m. At these elevations, the higher quality Coffea arabica thrives; the berries mature more slowl y, and produce a drink with more delicate flavors than those grown at lower elevations. Although these mountains possess some of the most important conditions for coffee cultivation, the suitability analysis will assess the suitability of the entire island due to scope of the JCI. Figure 4 1. Major coffee growing regions in Jamaica. The Jamaica Blue Mountain (JBM) coffee region is highlighted in blue and the Non Blue Mountain (NBM) coffee regions are shown in brown. Review of the Literature This paper h as two overarching frameworks: GIS multi criteria decision making (GIS MCDM), which uses GIS to guide decision making and competitive advantage as
103 defined by Porter (1985), used to discuss applications of the suitability model. More specifically, this pape r examines: 1. How can geospatial analysis be used to inform decision making process in the JCI? 2. How can the knowledge gained from this analysis be used to increase the bargaining power of th e suppliers of Jamaican coffee? GIS Analysis and Decision Making According to Malczewski (2004) multi criteria decision analysis (MCDA) can be thought of as a process that combines and transforms spatial and aspatial data (input) into a resultant decision (output). The MCDM procedures (or decision rules) define a relationship between the input and output layers/maps. These procedures involve the of the data and preferences according to specified decision rules. In a survey of t he literature on GIS MCDA approaches, Malczewski (2006, 715) showed that the largest proportion of papers was concerned with land suitability analysis. Additionally, papers focused on agriculture were most concerned with resource allocation and site select ion in addition to land suitability analysis. A number of multicriteria decision rules have been implemented in the GIS environment. These tend to be either multiobjective approaches (using mathematical programming model oriented methods) or multiattribute approaches (data oriented). Multi attribute techniques (such as those used in this research paper) are also referred to as the discrete methods because they assume that the number of alternatives (plans) is given explicitly (Malczewski 2004, 33). Accordin g to (Malczewski (2006, 717): The major advantage of incorporating MCDA techniques into GIS based procedures is that the decision makers can insert value judgments (their preferences with respect to evaluation criteria and/or alternatives) into GIS based d ecision making procedures, and receive feedback on their implications for policy evaluation. Such feedback can enhance the
104 decision findings in the decision support system literature on the importa nce of feedback. MCDA provides mechanisms for revealing decision preferences, and for identifying and exploring compromise alternatives. It can help users understand the results of GIS based decision making procedures, including tradeoffs among pol icy objectives, and use those results in a systematic, defensible way to develop policy recommendations. The implementation of such MCDA approaches is well documented in the literature. Walke et al. (2011) used a multi criteria overlay analysis to evaluate the suitability of cultivating cotton in the Nagpur district of Maharashtra, India. They used weighted overlay analysis to inventory various soil properties of their study site and calculate the overall suitability cumulative value. Combining analysis of landforms, characterization of physico chemical properties of soils, geospatial database generation, and evaluation based multicriteria overlay analysis techniques in GIS, Walke et al. were able to delineate suitability classes for cotton. Bandyopadhyay et al. (2009) provides another example of a land suitability analysis. They focused on categorizing the potential of a watershed region in south west India to support rain fed agriculture. Incorporating land use/land cover, soil type, organic matter, soil de pth and slope, Bandyopadhyay et al. (2009) conducted a weighted overlay analysis similar to that of Walke et al. (2011) and created their agricultural suitability map for the study site. With this in place they could make suggestions for an action plan for the study area incorporating soil and water conservation measures, ideal crops to cultivate and water management plans Bandyopadhyay et al. (2009, 893). Carr and Zwick (2005) explored the use of GIS suitability analysis to identify future land use conflic ts in North Central Florida, USA. Using the AHP as a guiding methodology, they assessed the most suitable areas for various land uses and
105 quantified the level of conflict among the defined land use classes. Carr and Zwick (2005, 71) noted that the results have the potential to be applied in a number of ways including decision support for local or regional planning activities, environmental regulation, or population modeling. Feizizadeh and Blaschke (2013) also performed a GIS based MCDM land suitability ana lysis which incorporated the use of AHP. In reinforcing the importance of reliable and accurate land evaluation, they emphasized the importance of using indigenous knowledge in the planning process and in developing appropriate land use policy that would s upport rural development. Working in Tabriz County, Iran, the authors determined the potential for irrigated agriculture and dry farm agriculture. Since the goal was to arrive at a single evaluation index, they recognized the usefulness of GIS MCDM to comb ine geographic data and value judgments to obtain information for decision making (Feizizadeh and Blaschke 2013, 5). The results identified the areas in Tabriz County where the intensity of land use for agriculture should increase, decrease or remain uncha nged information that would be of great importance to decision makers such as government dep artments within the study area. Competitive Advantage and Technology The competitive advantage concept used in this paper has its roots in the work of Michael Por ter in the 1980s. In his 1985 book, Competitive Advantage he states that th e form of) prices lower than its competitors for equivalent benefits or the provision of unique benefits that more t
106 According to Porter (1985, 3) sustainable competitive advantage is based in either cost advantage (having lo wer costs compared to rivals) or differentiation (of a product, delivery system or some other factor). These in turn stem from industry structure. In exploring these characteristics, Porter developed his Five Forces Model (PFFM) as a means of determining i ndustry profitability. The model outlines five forces that shape competition within an industry: 1. Bargaining power of suppliers, 2. Bargaining power of buyers, 3. Threat of new entrants, 4. Threat of substitute products or services, and 5. Rivalry among existing competitors. The model assumes a perfect market, static market structures and competition as the driving force for a firm (Krishnamurthy 2010) but has nonetheless been successfully applied in a number of contexts globally. The final suitability mo del detailed below can be best applied in the context of CA through the bargaining power of suppliers. Supplier power is based on several factors including differentiation of inputs, the presence of substitutes, the importance of volume to the supplier and the impact of inputs on cost or differentiation. How well this translates in the rivalry found in the specialty coffee market is depends on industry growth, product differences, brand identity, the diversity of competition and exit barriers. Porter argues that technologically based assessments such as the MCDM approach profit potential. The model created here can help with organizing and enhancing the competitive structure of the JCI. in Ontario, Canada highlighted just how technology can be used to increase the CA of a
107 supplier. They found that various technological tools accelerated the via bility of online tertiary education and decreased the competitiveness of brick and mortar institutions. The challenge remained for the traditional tertiary providers to take advantage of the various technologies to maintain the high standard of education t hat was desired. information technology enabled services sector in India. He found that the bargaining power of both buyers and suppliers were high, and because technology drove the market, the threat of substitutes was high. The most recent shifts in the global coffee market have seen the bargaining power of suppliers become weaker and weaker due to the fragmentation of the industry and the end of the International Coffee Agreem ent (Daviron and Ponte 2005). According to Diaz (2009) the general power of suppliers is very limited. Suppliers (usually from the developing countries) are often dependent on foreign exchange and are not in a position to raise their prices. Buyers of coff ee are often the sellers of the required production inputs or are otherwise involved in the lives of suppliers. The end result is that buyers have numerous options as to where to source their coffee while competition is fierce among suppliers in the mainst ream coffee market as to who can supply the largest amount of cheap coffee. Jamaica has been able to remain outside of this battle due to product differentiation but nonetheless have had to seek ways to reduce production costs due to increased competition. How the suitability model is designed to achieve this is encompassed in the remainder of the paper. Methodology and Data Analysis This GIS suitability analysis falls into what is often classified as land suitability analysis. It aims at identifying the mo st appropriate spatial pattern for future land uses
108 according to specific requirements, preferences, or predictors of some activity in 1980, it has been considered one of the most significant contributions to the sub field of multi criteria decision making with the core function being the determining of weights for the criteria being used in the MCDM process through expert opinion and pairwise comparison. This approach was sel ected over an equal weighting approach in order to incorporate the experience and knowledge of those intimately involved in coffee cultivation in Jamaica and res ult in a more realistic output. According to Saaty (2008), we are all decision makers but not a ll information is useful for improving our understanding and judgments. He states: To make a decision we need to know the problem, the need and purpose of the decision, the criteria of the decision, their subcriteria, stakeholders and groups affected and t he alternative actions to take. We then try to determine the best alternative, or in the case of resource allocation, we need priorities for the alternatives to allocate their appropriate share of the resources. The AHP method has been used in two distinc tive ways within the GIS environment. First, it can be employed to derive the weights associated with attribute map layers. Then, the weights can be combined with the attribute map layers in a way similar to the weighted additive combination methods. This approach is of particular importance for problems involving a large number of alternatives, when it is impossible to perform a pairwise comparison of the alternatives or when a simple 9 point relative rating scale is sufficient (Eastman et al. 1993 ) Second, the AHP principle can be used to aggregate the priority for all level of the hierarchy structure including the level representing alternatives. In this case, a relatively small number of alternatives can be
109 evaluated when taking the multi attribute decision making aspect of MCDM (Jankowski 1995) The primary reason for the popularity of the weighted summation and related methods is that the approaches are very easy to implement within the GIS environment using map algebra operations and cartographic modeling. The methods are also easy to understand and intuitively appealing to decision makers. However, GIS implementations of the weighted summation procedures are often used without full understanding of the assumptions underlying this approach. In add ition, according to Malcezewski (2006) the method is often applied without full insight into the meanings of two critical elements of the weighted summation model: the weights assigned to attribute maps and the procedures for deriving commensurate attribut e maps. Advocating the importance of relative judgments, Saaty (2008) outlines the AHP as having four steps: 1. Defining the problem to be addressed. 2. Creating a decision hierarchy. 3. Constructing a set of pairwise comparison matrices for the criteria related t o the research problem. 4. Weighting the criteria under comparison using the priorities derived from the previous steps. A fundamental scale from 1 9 is used in the AHP with 1 representing two activities or criteria of equal importance and 9 indicating the strongest order of difference between two criteria/activities under assessment. Although it can be modified in certain circumstances, this scale has been the default for most applications of AHP, including this research paper. The creation of weights is r ooted in the relative comparison of the various criteria in a pairwise matrix. Through a process of row
110 summation and division, weights could be obtained for each criteria which would then be used in the final decision making process. Critical to the pairw ise comparison process, is assessing the values using the consistency index (CI) and the resulting consistency ratio (CR). If the variation in the pairwise comparison matrix is sufficiently small (10% or less of the random value), the resulting weights can be accepted as valid (Saaty 1990). Broadly speaking, decision problems can be categorized into decisions under certainty and decisions under uncertainty. This is dependent on the amount of information (knowledge) about the decision situation that is available to the decision maker/analyst. If the decision maker has perfect knowledge of the decision environment, then the decision is made under conditions of certainty (deterministic decision making). Many real world decisions involve some aspects that a re unknown or very difficult to predict. This type of decision making is referred to as decisions under conditions of uncertainty. It should be recognized, however, that uncertainty may come from various sources. Many analysts deliberately choose to model spatial decisions as occurring under a condition of certainty because of insufficient data or because the uncertainty is so remote that it can be disregarded as a factor (Malcezewski 2006, 713). This paper also assumes decisions under certainty. The centra l problem to be addressed is this: based on bio physical and infrastructural factors, where are the most ideal locat ions to grow coffee in Jamaica? According to the literature on coffee production, there are several factors that must be considered when one decides on a location to grow coffee. Wrigley (1988) stated that rainfall, temperature and soil type are key factors; Mickle (2009) identifies
111 elevation, slope, precipitation and access to necessary infrastructure (such as roads, urban areas and farm co o peratives) as additional factors. Consultation with personnel in the Coffee Industry Board of Jamaica (CIB) reinforced the importance of temperature and elevation and also included relative humidity, solar insolation, average wind speed and cloud cover. Am ong these factors, several could be readily identified as feasible for inclusion in a suitability model while others such as relative humidity and percentage cloud cover were not considered due to the absence of available datasets. The D ata In order to car ry out this site suitability analysis, GIS data had to be acquired from reliable sources. The data for this paper was acquired from three sources: an elevation Digital Elevation Model (DEM) downloaded for the region including Jamaica from the Unites States Geological Survey (USGS) Hydrosheds database ( http://hydrosheds.cr.usgs.gov/ ). Temperature data was acquired from the WorldClim website ( http://www.worldclim.o rg/current ). For both sources, the data had to be clipped to the extent of the study area Jamaica, and in the case of the temperature data, modified to obtain the temperature information for the analysis. The remaining datasets needed for this analysis w ere accessed from the Mona GeoInformatics Institute (MGI) ( http://www2.monagis.com/ ). These datasets included soil type, geology, forest reserves and protected areas, waterways, roads and land use information. With this data in hand, a decision hierarchy could be constructed for AHP (Figure 4 2).
112 Figure 4 2 Decision hierarchy for coffee suitability analysis. Pairwise Comparison Matrix and Final Weighting With the decision hierarchy set, the next step in the AHP was to create a pairwise comparison matrix which allowed each criterion to be compared against the others. Following the recommendation of Saaty (2008), a nine point scale is used where 1 denotes equal importance of the compared criteria and a 9 indicates extreme importance of one criterion over another. For the pairwise comparison, a matrix was created and sent to various coffee experts in the JCI and responses from four of them were used in the construction of the weights (see online supplementary material). Following the methods outlined in Saaty (1990) and Saaty (2008), a matrix was created, values were entered in the comparison matrix and a set of weights were determined. The consistency ratio (CR) was calculated to be 0.050892026 well below the 0.1 (or 10%) level of inconsistency. The calculated Ideal locations for growing coffee in Jamaica Elevation Temperature Geology Soil type Slope Precipitation Distance to Roads Distance to Waterways
113 wei ghts could therefore be safely accepted. Table 4 1 details the final weights calculated for each of the criteria of interest. Table 4 1 Final weight calculation for suitability layers. Suitability Criterion Final Weight Elevation 0.06573251 Temperature 0.22352742 Precipitation 0.17647507 Soil Type 0.15523995 Geology 0.14235075 Slope 0.06489917 Distance to Road 0.09270979 Distance to Waterways 0.07906534 Suitability Criteria Data Reclassification With the weights determined, each of the criteria being used in the suitability analysis was to be reclassified to denote their suitability for coffee production. According to Carr and Zwick (2005, 63), nine suitability values are not only workable but ide al. More than nine values are difficult for humans to visually comprehend and fewer than nine values decrease the sensitivity of the (suitability) process. Thus the scale of 1 9 was used see Table 4 2 for the meaning of each value. All reclassification and further Table 4 2 Suitability rankings according to Carr and Zwick (2005) Rank Meaning 1 Lowest suitability 2 Very low suitability 3 Low suitability 4 Moderately low suitability 5 Moderate suitability 6 Moderately high suitability 7 High suitability 8 Very high suitability 9 Highest suitability
114 According to Wrigley (1988) and Mickle (2009) the best soils for coffee were deep, well drained loamy soil, slightly acidic, rich in humus and bases (especially potassium and phosphorous); volcanic soils, latosols / podsols and lateritic clays / loams wer e also good soils. Saline or marshy soil, hard pan (in heavy loam soils), gravel and those near high water tables were the worst soils to grow coffee. Additionally soil pH should be between slightly acidic (5.5 6 or 7) and moderately to well drained. The field and other supporting attributes in the soils shapefile (Figure 4 3). The 20 geology types were reclassified based on information gleaned from the literature and infor mation derived from the dataset. Categorization was particularly guided by the fact that volcanic materials are considered to be the best base for coffee plants and that the pH of soils should be between 5.5 and 6 (slightly acidic). Figure 4 3 Jamaica soils dataset before and after reclassification. Darker areas are more suitable. The reclassified soils and geology datasets were converted to raster format so that the weighted suitability analysis could be performed on the layers.
115 Unlike the soil and geology information with its discrete classes contained in polygons, the information about elevation, slope, precipitation and temperature were represented as a continuous variable within rasters. Therefore the reclassification of each of these criteria wa s based on the guidelines provided by the CIB and other literature sources ( such as the example in Figures 4 4 ). Figure 4 4. Elevation dataset before and after reclassification. Greener areas are more suitable, redder areas are less suitable. Finally th e distance from the major roads and major waterways was reclassified using distances derived from zonal statistics. The Euclidean Distance, Zonal Statistics as Table and Reclassify tools in ArcToolbox were used on the respective layers to obtain the necess ary 1 9 suitability ranks ( an example is shown in Figures 4 5 ).
116 Figure 4 5 Euclidean distance raster created from the roads layer. Darker red areas are further away from the major roads. Exclusion M ask While most of the island has some form of suitability with respect to each of the criteria being considered, some areas that could not be included in the final analysis built up urban areas, water bodies and protected lands. In order to account for these areas an exclusion mask was created to un ite the areas that met those criteria. The layers used to build the exclusion mask were a land use layer for Jamaica for 1998 5 a protected areas layer which listed the various protected areas across the island and a forest reserves layer that identified t he various forest reserves across the 5 Although old, it was the most up to date dataset available.
117 island. These data layers were combined using the Merge tool, converted to raster format and (using the IsNull tool) was modified to give all areas falling in the exclusion areas a value of 1. The areas covered by this exclusion mask can be seen in Figure 4 6 Figure 4 6 Exclusion mask for suitability analysis. Areas in black were excluded from the final analysis. Putting It All Together The Weighted Suitability Model The Weighted Sum and Times tools were used to obtain the final suitability layer that utilized the weights created through AHP. The model used to achieve this can be seen in Figure 4 7 while the final suitability layer can be seen in Figure 4 8 .
118 Figure 4 7 AHP Suitability Model the weights shown in Table 1 were integrated with each of the reclassified criteria layers and the resulting layer was combined with the exclusion mask to give the final suitability layer.
119 Figure 4 8 Final coffee suitability layer. Greener areas are more suitable for coffee production while redder areas are less suitable for coffee production. Areas excluded from analysis are shown in black. Discussion of AHP Suitability Model Results Model R esults The final model highlights that the most suitable areas for growing coffee are to be found in the mountainous core of central and eastern Jamaica. This conformed to the pattern of the suitability of several of the input criteria. It was also expected that the least suitable areas would be found on the southern coastal plains of the island; not only were these areas the least suitable, but all the large plains and much of coastal areas in the island were shown to have the lowest suitability for coffee. The t wo most extensive areas of high suitability regions were in and around the JBM coffee region and the hills
120 of south central Jamaica. The location of coffee farmers surveyed by the CIB in 2009 shows a remarkable consistency with the results of the suitabili ty analysis, validating its accuracy (Figure 4 9 ). The summary statistics generated in ArcGIS indicated that the average suitability at each coffee settlement location was 5.77 (with a minimum value of 3.63 and maximum value of 8.12). Figure 4 9 Coffee farmer location across the island of Jamaica compared with suitable areas. Bigger circles indicated a larger number of farmers. The JBM coffee region is highlighted by the blue boundary. Zooming in on the JBM region the focus of the JCI, much of the reg ion was excluded from the analysis due to the boundaries of the Blue Mountain and John Crow Mountain National Parks. However, most of the farmers in the JBM region were within the bounds of the model (Figure 4 12) and located in highly suitable regions (av erage
121 suitability of 6.25). A few farmer locations were flagged as being in excluded areas (including two farmers that provided addresses in urban areas) but as can be seen in Figure 4 10 these were located on the fringes of the excluded areas. This bring s up the issue of data accuracy. While steps were taken to validate the general accuracy of the datasets used, the possibility of error still remains. Therefore, the exclusion of those farmer locations does not reflect negatively on the suitability model. Figure 4 10 Coffee farmer location in the JBM coffee region compared with suitable areas. The JBM coffee area is delineated by the blue line and the red crosses indicate areas located in excluded areas. Applying the Model to the Jamaican Coffee Industr y The creation of this suitability model allows us to ask the question how can this model be applied as the JCI seeks to remain competitive in the global specialty market?
122 A prime application is providing stakeholders within the JCI with objective GIS ba sed reference for making decisions related to coffee production. Much of the spatial decision making within the advisory division of the CIB involved working with more generalized information such as the maps shown in Figure 4 11. Figure 4 11 Map of coffee region popularly used within the JCI. While this is adequate for the general management of coffee areas, more detailed information is needed when making more specific decisions. Examples include resolving land use conflict, management of the current farmer population, and developing a policy to encourage coffee infrastructure development. The evaluation of a detailed map as shown in Figure 4 8 enables farmers, processors, dealers and regulators to make more informed decisions about the potent ial of an area with relation to coffee. Potential farmers can look at a certain region and determine its potential for coffee and how much investment may be required to ensure profitability. Regulators can use this information in addition to their consider able knowledge of the local and global
123 market to determine where they should encourage production or relocation in certain coffee communities. Additionally, because these results were empirically generated, the model variables can be adjusted to facilitate scenario planning. An example is the assessment of the possible impacts of climate change on precipitation and temperature patterns and how those changes may affect coffee growing regions in the island. Porter (1985) posited that when firms (such as those in the Jamaican coffee industry) sustain profits that are greater than average for the industry then they have a competitive advantage over their rivals. This advantage is either based on a cost advantage production at a lower cost than rivals, or by di fferentiation, i.e. creation of a product that is perceived as being unique on an industry wide basis (Huggins and Izushi 2011). According to Porter (1985) maintaining these advantages requires consideration of many discrete activities ranging from product ion of the raw materials to the delivery of the end product to the consumer, i.e. the value chain. The JCI has already established itself as a well differentiated product. However, the CA in this area has often been eroded by the high costs of production r elative to many of its competitors and by increased competition in the specialty coffee market. This suitability model enables stakeholders in the JCI to consider the land base on which their product is grown and determine the areas which most suitable for production, thus reducing production costs. Magretta (2012, 43 45) highlighted that powerful industry suppliers have differentiation working in their favor and can credibly threaten to vertically integrate into producing the Because other suppliers of premium coffee can offset this power by becoming alternative suppliers, the JCI cannot depend on the prestigious place JBM coffee still holds in the global coffee industry. By making smarter, more
124 efficient business decisions, s tarting at the foundations of production (land suitability assessment) the JCI has the opportunity to retain its competitive advantage. In addition, it can use this suitability model as a stepping stone in pioneering novel applications of geospatial techno logy, not just to coffee but to other agricultural enterprise in Jamaica and in other small islands. However, with these and other implementations of GIS MCDM there are several issues that arise. Maleczewski (2004, 36) notes that it is well known that the input data to the GIS multicriteria evaluation procedures usually have the property of inaccuracy, imprecision, and ambiguity (as evidenced by the excluded farmer locations in Figure 4 13). In spite of this knowledge the methods typically assume that the i nput data are precise and accurate. GIS based analyses also face the challenge of becoming outdated and the results generated will need to be updated as the GIS datasets are updated (Feizizadeh and Blaschke 2013, 19). Beyond data accuracy and currency, the se analyses are focused on biophysical characteristics that are easier to measure. The model considered several biophysical factors but did not include additional infrastructural data beyond distance to roads and waterways. Network effects such as coffee f armer proximity to processors, and many socio political factors were not captured in this analysis. As a result, an area that might be deemed very suitable may be in an area that is prone to flooding or landslides; another deemed to be marginally suitable may be ideal for production due to current agricultural policies. Several stakeholders were involved in the development of the weights that influenced the outcome of the suitability analysis. Despite this, the model may bring up issues that cannot be addre ssed by GIS analysis (Bojrquez Tapia et al. 2001, 146), such as
125 whether the political climate is amenable to the research results. Together, they serve as a reminder that GIS MCDM, while highly important, should not be used as a stand alone basis for deci sion making. Final W ords Bojrquez Tapia et al. (2001, 148) notes that information generated at a regional scale is of limited use for decision making at the local level and that more complex models are needed to sanction projects at that level. Neverthel ess, the worth of a land suitability assessment as a strategic planning tool at the regional level must be evaluated in light of the accuracy of the model and its potential utility for the stakeholders in the JCI. In this regard, this suitability analysis provides a valuable first step in a more objective restructuring plan as the JCI continues to move forward in the 21 st century.
126 CHAPTER 5 CONCLUSIONS Summary of Findings The overall aim of this dissertation is to help the Jamaican coffee industry ( JCI) be more competitive on the global specialty coffee market. The papers presented assessed the strengths and weaknesses of the JCI, exploring underlying issues faced by stakeholders and developing new ways to integrate spatial analysis in order to incre ase production efficiency. Linked through the framework of competitive advantage (CA), this dissertation focuses on the issue of increasing the bargaining power of the JCI. The first focused on the research question: (PFF M) be used to assess the competitive advantage of the JCI? It was observed that the complexity of the global coffee value chain has a strong influence on the forces at work in the JCI. This in turn affects the bargaining power of stakeholders in the JCI A consolidation of various entities, the increased influence of international coffee companies in local production systems, declining farmer productivity due to increased input costs and economies of scale, and the ever changing demands of consumer of cof fee all come together to determine to st ructure of the coffee industry. As sustainable coffee initiatives become more mainstream it will become increasingly difficult to market coffee based on quality alone. The JCI can do little about the threat of substitutes, the threat of new entrants, or the rivalry among existing competi tors in the global coffee market. Therefore, the focus needs to be on improving their supplier bargaining power relative to that of the bargaining power of buyers. Because the desire for prestige and fine foods/drinks will always be there, the JCI
127 needs re main focused on its target customer base wherever it may be, leveraging its experience to remain competitive in the premium coffee market. The challenges and responses highlighted in the second paper show that it is not just simply a matter of retaining su pplier bargaining power. How to actually implement viable strategies is crucial. The paper hypothesized that rising and maintenance costs were the major challenge to the competitive advantage of the JCI. Based on the data analysis, this certainly seems to be the case primarily among farmers but less so among processors, dealers and the regulatory agency. Various intra national challenges exist in the JCI. From unequal resource distribution to tensions between farmers, processors and dealers and the high cos ts of producing coffee in Jamaica, it is critical to power all involved have to make an impartial assessment of their future in coffee and either cut their losses and ex it coffee or redouble their efforts to be an efficient pr oducer and innovative marketer. At the intra national level, farmers have to become more efficient, though smaller farmers will find this more difficult than larger farmers. At the same time, process ors and dealers should offer a higher price per box of coffee to farmers. This will provide an incentive to those farmers who are striving for efficiency, yet still struggling to make ends meet. Greater income for farmers should translate into production o f higher quality coffee. Local coffee dealers need to keep the fall in demand in the 2000 s at the forefront of their mind as they seek to diversify the market for Jamaica Blue Mountain (JBM) coffee.
128 It is all too easy to become complacent in the near futur e as new sale s channels are secured. Faced with low prices and increasing price volatility, more producing nations are seeking opportunities in the premium and specialty markets. By staying in tune with international marketing trends, the JCI should be abl uniqueness and remain above the growing homogenization of the specialty and premium coffee markets. Brand reputation takes years to build (and only days to lose!) and stakeholders in the JCI have to remember that they need the marke t more than the market needs them. It is expected that the concentration of bargaining power towards buyers among at the intra national and international level will lead to consolidation of some firms in Jamaica as smaller producers become less able to com pete. As this happens, the regulators within the JCI must ensure that those that remain are able to be efficient in their production so that they will be better able to increase their profit margins when the coffee is then sold on the international market. This includes employing labor saving technology where applicable and increasing knowledge sharing among stakeholders. One such labor saving technology is geospatial analysis. The third and final paper presented a GIS site suitability model for coffee in J amaica. The model considered several biophysical (and one infrastructural) factors to identify the optimal locations for coffee production in the island. The paper went on to discuss how the output can be applied to guide industry strategy as Jamaica seeks to maintain its CA. This approach provides a simplified approach to assessing the viability of currently cultivated lands and identification of lands that may be ideal for development. It also
129 displays its potential for guiding short, medium and long term decision making as the industry responds to market demands. Much of the spatial decision making within the advisory division of the CIB involved working with more generalized information. The more detailed information presented in the model can be utilize d in a number of ways. Examples include resolving land use conflict and assessing the possible impacts of climate change on precipitation and temperature patterns and how those changes may affect coffee growing regions in the island. According to Michael P orter maintaining CA requires consideration of many discrete activities ranging from production of the raw materials to the delivery of the end product to the consumer, i.e. the value chain. The JCI has already established itself as a well differentiated p roduct. However, the CA in this area has often been eroded by the high costs of production relative to many of its competitors and by increased competition in the specialty coffee market. The various elements covered by this dissertation: overall structure challenges and responses and the integration of geospatial analysis should aid stakeholders within the JCI to make smarter, more efficient business decisions. Avenues for Future Research What shall we say to these things? Where do we go from here? Like a ll good research, this dissertation raised a number of questions during the course of its completion. In order to answer them all would have required a second dissertation and several more years of graduate school. Fortunately even with the completion of t his PhD, the opportunity to pursue some of these questions remains. Below are listed five of the more interesting questions that I hope to pursue subsequent to the completion of my doctoral degree:
130 Statistical Time Series Analysis of Coffee Production and Prices in Jamaica During the course of this dissertation, a large amount of data was collected on coffee production, export volumes, income received, prices paid to farmers and a few other categories. However there were some data gaps in some of the catego ries and time limitations prevented me from gathering the information. Going forward, I am interesting in finalizing the collection of this data and applying time series analysis to quantitatively explain the trends observed. Beyond this it may be possible to see if these factors can be used in regression modelling to explain the prices received for Jamaican coffee on the international market. Site Suitability Analysis for Other Areas in the Caribbean Wherever there are limiting factors for agricultural pro duction, site suitability analysis has the potential to positively inform decision making for current and future stakeholders in that sector. Following the format of the site suitability analysis of the JCI, I hope to do similar analyses for other agricult ural sectors in Jamaica and other small island territories. This will have the additional benefit of fostering geospatial data analysis in the target study areas. Comparing the Development of the Coffee and Tourism Sectors in Jamaica and Hawaii An idea rai sed early in my degree (and then quashed just as early), it would be interesting to compare the economic development of two similar countries Jamaica and Hawaii. Both nations are small islands and are famous for their high quality coffee and being a grea t tourist destination. How similar their development paths were and how they differ is something I believe would be interesting to discover not just for my own interest but to present to the wider academic community.
131 Conducting a Land Use Land Cover Change ( LULCC ) Analysis of an Area/Sector of Jamaica Incorporating remote sensing, the other big geospatial field turned out to be impossible during this dissertation because of the lack of high resolution satellite imagery. In order to pursue this research que stion, I will have to obtain good imagery for a pre determined area of interest over a specified time period (say at two year intervals for 4 or 6 years). This area would then be analyzed to determine the various land cover changes than have occurred. One potential focus area is the urban agriculture boundary in the capital city of Jamaica. This type of analysis can capture and tell the story of how agricultural land has been lost to urban development over time. Developing an Updated Land Use Map of Jamaica A major issue that arose during GIS data collection was the lack of up to date datasets and outright absence of spatial data in some fields. The most notable was the land use map of the island which was dated at 1998. In order to achieve this goal, there will have to be a collaborative effort between myself and the various planning and environmental agencies in the island. As this is completed, it is hoped that: (a ) By being involved in this effort, the participating stakeholders will go beyond this to con tinue the compilation of additional spatial data. (b) By comparing the old and new land use datasets I will be able to link the development patterns observed in the island over the last 10 20 years to the changes indicated by the spatial data This includ es exploring the said changes and see how they may be linked to socio economic trends or environmental policy changes.
132 APPENDIX A SAMPLE INTERVIEW FORM Farmer Interview Form The following questions will be examining the factors driving farmer decision making in the Jamaican coffee industry. NB : Note taking form provided separately. Background question : How did you get into coffee farming? Probe: Did y ou have any specific goals in mind? Probe: Are these the same goals you have now? 1. a. Apart from coffee, what are some of the crops that you have grown recently? Probe: Why do you grow them? b. Where do you usually sell your various crops? Probe: Which co ffee dealer do you sell to? Probe: Do you sell in other towns/cities/parishes? Probe: Do you sell to other businesses? 2. What are the biggest challenges you have experienced in farming coffee (over the last five years)? Probe: How have pests or disease affected your farm operations? Probe: How have each of them affected how you grow coffee? Probe: Do your coffee farming neighbours experience similar challenges? 3. How have you been coping with these challenges? Probe: How have you changed your farming operations to adapt to the changes? Probe: Have you worked with other farmers to find solutions? Probe: Has the CIB helped you cope with these challenges? If so, how? Probe: Have other stakeholders (such as the coffee dealers or processors) helped you manage these challenges? 4. What or who are the biggest influences on your long term decisions regarding coffee farming?
133 Probe: What would motivate you to stay in coffee? Probe: What would be the last straw for you, i.e. make you leave coffee farming? Probe: Do you think any of the issues are related to regional or global competition? 5. Are there any other things (social/cultural/political/economic) you can think of that influence or affect your farming operations? Probe: Do you think that there is anything that you can do to change them? Probe: How long do you think the changes will take? Closure question : Do think you will be making any major changes in how you farm in the next ____ (time period)? Probe: Why do you say this? Thank you very much for completing this interview with me. The time you took to do this is highly valued. Please remember that you have my contact information on the consent form that I gave to you. Please feel free to c ontact me if you have any questions on how this information is being used for this research project.
134 APPENDIX B DETAILED QUALITATIVE ANALYSIS OF INTERVIEWS Table B 1. Categories of challenges and respons es of all JCI stakeholders with associated themes and topics Category Common Theme Topic Coffee production economics: production costs, prices received, payment structure Production costs outstripping money from coffee; low prices for coffee; desire for better prices for their coffee Low price per box for coffee; increase in material costs / high costs of material inputs; increase in labor costs / high labor costs; desire for increase in price per box for coffee; farm fragmentation; high risks in growing coffee; deteriorating infrastructure increasing production costs; coffee as a money losing venture; increase in production costs; need help with labor*; uncertain financial returns from coffee; base price for coffee; need help with transportation*; increas ing marketing costs Resulting domino effects leading to farmers leaving coffee: payments delays, high costs of production Growing crops other than coffee to provide a stable income; the chain reaction caused delays in payments for coffee Delay in payments for coffee + negative effects; The struggle for survival; lack of resources preventing proper farm management; predatory behavior of middlemen; observed improvement in timing of coffee payments Man shall not live by coffee alone: The need to diversify aw ay from coffee to survive + other coping strategies Growing more than coffee to survive Diversification away from coffee / multicropping; focus on pure stands of coffee Issues raised specifically by female farmers interviewed
135 Table B 1. Continued. Category Common Theme Topic Weather, climate and the JCI: influence of climate change on weather and pests/diseases? Impacts of weather/natural disasters; the possible influence of climate change on pest / disease management Negative impacts of bad weathe r; different diseases/pests affect different altitudes Managing pest and diseases in the JCI Impacts of coffee berry borer and other pests / diseases Impact of coffee berry borer; impact of other pest / diseases; removal of effective (but environmentally harmful) Phiodon/Thiodon; perceived low effectiveness of coffee berry borer traps Survival of the fittest: only the strongest coffee farmers remain Only the committed farmers remain; the challenge of surviving as a coffee farmer; competition among Jamaica n coffee dealers Strong commitment to coffee; seeing others leaving coffee; low desire to stay in coffee in the long run; cutting back coffee for regrowth; quality of coffee produced by small vs. large farmer; desire to expand coffee farming operations; g ave up on his/her coffee NBM coffee: extra challenges and the role of the co ops The demise of NBM coffee; the experience of being part of a co operative group The struggle for survival; decline in NBM coffee; JBM vs. NBM coffee production The dynamics of the local coffee market Pessimistic view of the future of coffee; the experience of being part of a co operative group; farmers helping each other survive; competition among Jamaican coffee dealers; interaction and information flow among JCI stakeholder s; Special needs of the vulnerable: women farmers The good old days of coffee in the 1980s/1990s; competition between Wallenford and other companies; history and dynamic of coffee in Jamaica; the local coffee trade; family tradition of farming; farm fragme ntation; benefits and challenges of being in a co op group; farmers supporting each other; young people not entering coffee / agriculture; family involvement in dealer operations; rezoning JBM coffee production; role of the co op; importation of foreign co ffee; lack of trust among farmers; operation as a local arm of a foreign company; increased price for coffee from local sources; myths surrounding JBM coffee; proposed merger of CIB with other boards; role and operations of CIDCO; the role and operations o f Wallenford; history and role of Mavis Back Coffee Factory
136 Table B 1. Continued. Category Common Theme Topic The Jamaica Japan connection The dynamic of the Japanese coffee market Dynamic of the Japan coffee market; end of advance payments from Japan Lessons learnt from the 2008 recession The impacts of the recession on the local and/or global coffee industry Impact of recession / fall in global coffee prices and its repercussions; The need for effective marketing strategies and product diversification The need for product diversification Product diversification; the international coffee market; sale of value added coffee products; global competition; need for effective market decisions; sale of value added products other than coffee The need for market diversification The need for market diversification Market diversification; decline in traditional markets for JBM coffee; increased demand for JBM coffee supply vs. demand; global competition The privatization of the JCI the Wallenfo rd and Mavis Bank divestment The restructuring of operations in the JCI: divestment Divestment of companies in the JCI; investment opportunities in the JCI; Perception that the coffee companies are holding out on the farmers Increasing production efficien cy: vertical integration The need for production efficiency; Streamlining the operations of the JCI from production to export Vertical integration of operations; coffee's need for constant maintenance; spanning the value chain; the need for increased appl ications of technology; constraints to applying labor saving technology Stakeholder dynamics: farmer processor linkages Quality production vs. quantity production; farmer processor assistance programs; better farmer assistance from processors; indirect e ffects of farmer challenges
137 Table B 1. Continued. Category Common Theme Topic Whither the government?: Improving the effectiveness of the CIB and other government support The role of the CIB: is it doing enough?; The apparent absence of government assistance; perceived bias of the CIB towards larger farmers Absence of government support; regulatory role of the CIB; need for more than technical advice from the CIB; close working relationship with the CIB / government agencies; lack of assistance from CIB; perceived bias of CIB focus on larger farmers; lack of information on what's happening in the industry; quality standards for JBM coffee; diminished role of the CIB; need for supporting infrastructure / policies; coffee related services The dark side of the JCI: corruption, politics and mismanagement The role of politics in the operations of the JCI; mistrust and competition among farmers Role of politics in the decline of the industry; perceived mismanagement of the industry; issue of corruption Making smarter, more efficient stakeholders in the JCI Best practices in coffee production + finding ways to deal with farm issues; the need for smart marketing decisions / approaches to marketing Need for production / manufacturing efficiency; aiming to get farmers to adopt best practices; farmer unwillingness to change; importance of good business practices
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147 BIOGRAPHICAL SKETCH Mario Antoio Mighty is a native of Jamaica and a committed Christian. He purs ued his Bachelor of Science in g eography at the University of the West Indies in Kingston, Jamaica. After gaining real world experience working at a GIS company for a y ear he first completed a Master of Arts in g eography and continued on to pu rsue a Doctor of Philosophy in g eography at the University of Florida in Gainesville, Florida, in the United States. Mario believes that all that he does is guided by his relationship with Jesus Christ and to this end he became very involved with Graduate Christian Fellowship, serving as secretary, treasurer and the n president for three years. He was also involved with the Gator Badminton Club and the Gator Cricket Club during his time at the University of Florida. Mario career goal is to foster the integration of geospatial technology into policy development, especi ally with regards to agricultural enterprises in the Caribbean. He expects to maintain an active research presence in Jamaica and the rest of the Caribbean, helping to develop strategies that improve stakeholder competition on the international market.
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