Can local coffee farmers develop a single brand for Hawaii?
“Coffee break” took on a whole new meaning at the Hawaii Coffee Association’s 6th annual conference on Maui in July. The 45-minute sponsored breaks were not to be taken lightly and allowed plenty of time for some serious sipping of the islands’ choice offerings.
But aromas and tastes weren’t the only things being scrutinized at the conference. National coffee retailers pumped palms with the local farmers and processors to mull the future of Hawaii’s coffee industry – the state’s sixth largest commodity ranked by value of production. Last year’s coffee production (total farm revenues) was valued at $21.4 million, according to the Hawaii Agricultural Statistics Service (HASS), a 9 percent gain over 1999. However industry experts have put an approximate $264.4 million price tag on the entire industry, encompassing all stages from the farm level all the way to retailing the final product.
The growth in statewide coffee production has also put increasing pressure on the industry to deal with one of its most critical challenges: how do you brand and develop higher value for coffee grown in Hawaii but not in Kona on the Big Island?
The industry is split on how to deal with the dilemma. Some growers, particularly those who are located in Kona, fear that a “Hawaii” brand will water down the value of their prized beans. Others worry that discerning drinkers will come to look down on “Hawaii” coffee if there’s a wide range of bean quality.“To raise value you have to build a brand name,” says Frank Kiger, vice president and general manager of Kauai Coffee Co. and president of the Hawaii Coffee Association. “And the current challenge for all of the outer islands growing coffee, is trying to establish their brand name. Kona’s been established for hundreds of years already, so there is a push being made to build recognition for the industry statewide.”
Much of the industry’s concern relates to loose-ended labeling laws, which some in the industry are trying to clarify. Coffee producers say consumers are uneducated about the difference between blends and 100 percent Hawaii coffee. A blend consists of a certain percentage of Hawaii-grown coffee mixed with cheaper varietals from other areas around the world. Current labeling laws apply only to Kona blends. Producers are required to have at least 10 percent Kona coffee in their Kona blends.
The new laws, if implemented, will create competitive pressure on the industry to increase the actual percentages of Hawaiian coffee being used in each bag. One local company, Honolulu-based Hawaii Coffee Co. Inc., has already raised the bar with the introduction of its minimum 30 percent Hawaiian coffee product line – a significant increase when compared with other local blends. “This is the forefront of a bold new movement in the Hawaiian coffee industry to increase the amount of Hawaiian coffee in every package,” says Hawaii Coffee Co. President James M. Wayman.However the state Agriculture Department and the Hawaii Coffee Association formed a committee this year to change the focus of existing laws from the minimum percentage required for Kona blends, to “truth in labeling” for all blends, regardless of origin. Truth in labeling, simply stated, is if you’re going to use an origin in the identifier (i.e. “Kauai Coffee”), companies will be required to put the exact percentage of coffee from that origin on the label, whether it be five or 100 percent. The bills will be introduced in the January 2002 legislative session, and if signed into law by the governor, will become effective in the first quarter of 2003.
The wide range in the coffees grown and produced in Hawaii makes it difficult to gauge the average price per pound for green beans. However, industry experts say the Islands’ beans should sell for between $3 to $10 per pound. Kona coffee, with its worldwide reputation, represents the upper-end of the spectrum ($8 to $10 per pound), while beans grown on Oahu, Kauai, Maui and Molokai generally go for around $3 to $6 per pound, varying by individual farm. Coffee prices escalated throughout the 1980s and 1990s and reached a peak three years ago. That’s when Kona coffee was selling as high as $16 per pound. At that point, with prices faster than demand was going up, the green coffee bean market imploded. It wasn’t until last year’s season that prices started to rise.Because coffee is literally at the mercy of the free market, and its value is really a reflection of consumer perception of quality, it has become imperative for the industry to unite and market all Hawaiian coffees – not just Kona – as a high-quality, upscale commodity. Current world market prices for green coffee beans are hovering at around 52 cents per pound on the New York Commodities Exchange – an eight-year low – making it increasingly difficult to rationalize the high prices paid for Hawaii coffee. “That continued disparity in prices … 52 cents for world market prices versus premiums that people expect to get for some of their higher qualities, means that you have even a greater challenge to justify the price you get for your product,” says Stephen Leach, director of green coffee purchasing for national retailer Diedrich Coffee Co. and a licensed grader for the New York Commodities Exchange.
As the only U.S. state growing and producing coffee, one might think that Hawaii’s coffee industry would be a cash cow. Yet in the global perspective, Hawaii is a tiny blip in world production. According to Leach, world production is an average of about 100 million bags (each weighs about 132 pounds) per year. The U.S. imports 18 to 20 million bags a year. Hawaii produces about 8 million pounds, or about 60,000 bags, or about .06 percent of the world production.
In addition, huge, highly mechanized plantations in Brazil, the world’s largest coffee producer, have flooded world markets. Vietnam, a long-time small exporter, has recently passed Columbia to rank No. 2 after planting and producing low-quality coffee.
Hawaii’s challenge – and opportunity – is to position its coffee beans at the high end of the market. “While Hawaii does only .06 percent of the world production, it is up at the top of the quality spectrum,” Leach says. “We just need to get a more concentrated effort so people know there’s more than one island producing the products.”
To engage Hawaii’s diverse group of farmers, roasters, and retailers – who are further divided by island – in cooperative efforts has been a challenge. It hasn’t been until recently that resistance from Kona farmers, touting the state’s oldest and well-established coffees, has simmered down. Most of the dissent stems from Kona growers’ concern over a feared loss of market share and a diluting of the value of their high-priced beans.
Whereas coffee grown on smaller, independent Kona farms is handpicked, Kauai, Maui and Molokai farms are predominantly larger agribusiness operations, with fully irrigated systems and machine processing.
“The islands do have so many different growing regions, so yes, all coffee is going to taste different. To try to present that coffee to your customers as all equal top quality coffee, I think is doing it injustice,” Leach says. “But more needs to be done to promote the state as a whole so people have the flexibility to blend within the Hawaii coffee industry as a whole.”
Recent marketing efforts show promise. Next year in May, Hawaii growers, for the first time, will join together at the annual Specialty Coffee Association of America’s trade show and conference in California. “This is a step in the right direction, because for the most part, when people think of Hawaii, they think of Kona. The other islands are so new that they really haven’t had the time they need to earn the premium they’re due,” says Ted Lingle, executive director for the Specialty Coffee Association of America.
Marketing is also getting a boost from cooperation between the Hawaii coffee industry and the state Agriculture Department. The Hawaii Coffee Association has an annual budget of around $50,000, which the Agriculture Department matches.
The department is also working closely with the Japan-Hawaii Coffee Association. Last year, 15 Japan-based coffee roasters were invited to Hawaii to visit farms on all islands and get an intimate look at the way coffee is grown in the Aloha State. The trade mission was such a success that the Department of Agriculture signed on with the Hawaii Coffee Association to co-sponsor a second trade mission this year. This time, seven local companies will send representatives to Japan, a country where it isn’t unusual to pay $7 to $10 for a cup of coffee in a coffee shop or fancy restaurant.
“We’ve taken a new approach to marketing, and going to Japan is a great opportunity to learn why our coffee is special there and what we can do to promote that,” says Frank Kiger of the Kauai Coffee Co. The company, a unit of Alexander & Baldwin Inc., is the state’s largest coffee exporter to Japan, with about 25 percent of its crop being exported there.
“I think what’s going to determine success for the industry is for them to be as market savvy as possible. They have to market heavily to Japan, the mainland and Europe,” says H.C. Skip Bittenbender, extension specialist with the department of tropical plant and soil sciences at the University of Hawaii. Currently, nearly 90 percent of the state’s coffee production is exported to the U.S. mainland, with the balance distributed throughout Japan, Canada and Europe. A very small percentage of the production is sold in Hawaii.
The Hawaii Coffee Association and the Agriculture Department also launched a cooperative advertising campaign last year, matching funds with participating companies. Says Kiger: “We were able to provide the opportunity for small businesses to advertise in national magazines where they’d never otherwise be.” The advertisements featured coffee companies from all over Hawaii, further fueling the industry’s campaign to market coffee beans grown statewide.
In the end, Kiger says, the success of the industry is greatly dependent on everyone’s ability to support a unified goal: marketing Hawaii – not just Kona – as a place that produces gourmet specialty coffee. “You have to operate under the concept that premiums are earned,” says Lingle. “And they’re earned over time, marketing’s not something that happens over- night. But if you don’t do it, it never happens.”