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David Neumann, chief executive officer and member of the board, Neumann Kaffee Gruppe.
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Pablo Garcia C., chief operating officer and member of the board, Neumann Kaffee Gruppe.
The Neumann Kaffee Gruppe (NKG) is the world’s leading green coffee service group covering all aspects of coffee from cultivation and farm management, export and import operations, quality processing and classification, soluble coffee, specialty beans, logistic, financing and risk management. Founded by Hanns R. Neumann, who first started trading coffee almost a century ago, the holding company Neumann Gruppe GmbH, based in Hamburg, Germany is privately owned and today is represented by over 50 subsidiaries in 26 coffee producing and importing countries.
In this STIR Q&A, David M Neumann, chief executive officer and Pablo Garcia C., chief operating officer of NKG’s board of management spoke to STiR Coffee and Tea Magazine about the challenges affecting the global coffee industry.
STiR: Neumann is an old family name with a long tradition in coffee, how has the company evolved through time from the early history until today?
David M. Neumann: We are fiercely independent and mighty proud of having been able to be successful over decades and generations doing what we love. This gives us unparalleled credibility, which, paired with our total dedication to coffee and only coffee, has allowed us at all times during our history to be a state-of-the-art and modern service company. Among the top coffee trading houses we are the smallest company by far and competing with the coffee departments of multinational trade concerns keeps us sharp. With the combination of our long-standing experience, our openness to innovation, and the shared knowledge from our group companies all around the world, we are convinced we are in the best possible position to serve our customers of all sizes in this rapidly evolving coffee world.
STiR: The Covid-19 pandemic is a major challenge to the global coffee industry. What are the most significant issues from the pandemic to affect the coffee industry?
Pablo Garcia C.: The vast majority of coffee producers and the rural population are not yet vaccinated so coffee producing countries are far away from any kind of normality in life and economic activities. This sad circumstance will prevail for quite some time creating waves of disruption in the supply chain and applies more or less to all producing countries. Covid-19 restrictions are impacting global logistics and the flow of coffee will continue to see severe limitations and distortions in timely availability.
The coffee industry has relied on a just-in-time purchase strategy and has been assuming a constant and timely flow of coffee. This strategy is challenged now and may move towards a just-in-case approach to secure timely supplies. Around the globe we see cost inflationary pressure leading to higher producing costs which will have to be reflected in international prices both at the green coffee level as well as retail prices.
STiR: The disruptions to the supply chain at the beginning of Covid-19 led to soaring freight prices and a global container shortage. How are you dealing with this?
Garcia: We are seeing a disruption all along the coffee supply chain from the restriction of movement of people due to the pandemic including laborers in the harvesting season, to coffee movements being substantially distorted by lack of equipment for transport and curfews. As a global trade house, one of our functions is to anticipate and mitigate effects of distortions in the coffee supply chain by securing freight space with sea liners, but that has only been partially successful given the squeeze in the transport market.
A classical function of a trade house is to hold coffee stocks near our customers facilities, i.e., in the import markets and make them available as demand comes up. This has helped counteracting some of the disruptive logistical effects. However, we are in the same boat as other market participants suffering from the disruptions and delays in shipments and we don’t see an improvement in the short term until capacities are made available and backlogs caught up with.
STiR: How do you respond to those who are critical of multinationals saying the biggest 4-5 companies hold too much power over the industry and do not do enough to be more transparent about how they conduct trade?
Neumann: Neumann Kaffee Gruppe is a group of local and regional companies that are independent from each other but work together closely, so we are essentially a multinational group. This international diversity is one of the things that makes NKG more than the sum of its parts and we can serve our customers better by collaborating on the key topics of today, such as integrated and sustainable supply chains, and climate change. We operate in a highly transparent environment and mechanics of our business.
The fact that there is no concentration of business volumes and no dominant supplier to the coffee industry, clearly contradict such positions. The top five trading companies handling substantially less than half the traded volume worldwide does not lend itself to having “too much power” over anyone – as opposed to the situation in almost any other commodity. On top of this, we are the only large coffee trader headquartered within the EU and subject to its tough, transparent, and growing regulations for business.
STiR: Perhaps the hottest topic in the trade right now is the dwindling supply in Brazil after the worst drought in over 90 years was followed by the most severe frost in 40-50 years. What is the impression of Neumann people on the ground in regard to how severe the situation is and the impact on the flowering for the next 2022 harvest in Brazil?
Garcia: There really were several areas for severe concern recently. The soil moisture deficit in the main Brazilian arabica producing areas and the drier than normal weather had not only dented crop prospects (via smaller cherries) but also compromised the vegetative growth. The frosts of July 2021 [particularly the one on July 20] have led to further loss of productive potential in the main arabica areas. Heavy frost damage will cause hard pruning for part of the area, and heavier defoliation for less damaged areas will nevertheless weaken coffee trees and potentially compromise the flowering intensity upon return of rains.
The third layer of concern is the delayed start to the wet season, which is currently forecast to arrive from around mid-October. It’s certainly not a great start, but high prices should at least be encouraging farmers to make the best possible outcome of the situation in terms of farm care.
STiR: We are observing many complications at origin including in other top growers Vietnam and Colombia. How serious are these issues affecting the stability of production at origin?
Garcia: Global production has steadily concentrated in the top three producers over the last 30 years. Brazil, Vietnam, and Colombia represented over 60% in the last 10 years. Global production has become increasingly less diverse and hence more dependent on the major countries. Any problems in these countries have a large impact on global volumes making the coffee balance sheet much more volatile and susceptible to weather or logistics issues. As a group exclusively dedicated to the coffee trade, we are invested in a large number of producing countries and want to preserve diversity in the supply base of coffee for social, economic and environmental reasons. We see this concentration of supply and reduction of diversity as a huge loss to the coffee business and the world’s coffee consumers. Being more than a commodity, coffee provides pleasure and satisfaction to the consumers. This character must be preserved by offering a wide range of taste profiles honoring the characteristics of its varieties and its terroirs.
STiR: Talking about the way diversity in the coffee supply chain is becoming smaller by the day, what is Neumann doing to confront this problem?
Neumann: We want to actively shape the future of the coffee industry in a positive way and NKG is doing its best to contribute to a more viable and continuously diverse coffee world, for example with its Responsible Business Program. With programs like NKG BLOOM, an initiative supporting smallholder farmers in coffee producing countries, or the new program NKG Verified, offering full traceability for specific supply chains and aiming at working with all our key suppliers worldwide on improving ethical standards. We are very clear that we alone cannot make a difference, but we are not alone. NKG is for example a founding member of International Coffee Partners and coffee&climate, both initiatives started to help make a difference and NKG will continue to be here to drive and support change and development within our parts of the industry.
STiR: Is climate change real for the coffee industry? Does the coffee industry need to take this more serious in order to protect the supply line for future generations?
Garcia: Of course, climate change has huge implications for the coffee industry. Some of the regions highlighted as most susceptible to climate change impacts are coffee producing regions in East Africa and Brazil’s Cerrado Mineiro. Studies have shown that most coffee farmers around the world will be impacted by predicted changes to growing conditions from climate change affecting such crucial elements for coffee cultivation as seasonal rainfall patterns and temperatures. Vast coffee producing areas in the Central American lowlands have suffered from climate change and have been abandoned or substituted by other crops.
The existing diversity of coffee supply that we still have, despite the concentration of production in the top producers, is therefore even more under threat from these climatic factors. We need to take whatever action we can now to mitigate climate change risks and impacts for coffee farmers around the world, making the production more climate resilient. More broadly, as a collective industry effort, we have to ensure the future of coffee supply and the livelihood of the people who grow it.
STiR: For over 20 years the coffee industry talked about how to become more sustainable from seed to cup and yet we still see the worst levels of poverty and lack of development concentrated in coffee regions across the developing world. How can the industry achieve the goal of becoming sustainable?
Neumann: I am not sure there really is a satisfying answer to this question. We estimate that around US$100 million per year go into sustainability issues at all kinds of levels in coffee alone. Yet on the ground in the coffee producing areas and amongst the millions of smallholders, nothing of substance seems to really change reliably. The desire to consume more coffee in the world will continue to grow at the rates we have become used to after the Covid-19 dips, but this can only happen if the coffee can be produced under a social, economic, and ecologically sustainable criteria.
This is not a question of price alone, and I don’t feel it is being seriously addressed in many places. At the same time, part of coffee sustainability is surely diversity in growths and qualities. This is another field in which much of the roasting and retailing industry could play a more active role – in making sure that coffee is not offered from only a small handful of countries but that it continues to offer the choice and range consumers appreciate and rightfully demand.