ICO unveils new International Coffee Agreement, all stakeholders to have say on the future of coffee

KAMPALA– In a new spirit of collaboration, the International Coffee Organization [ ICO ] has announced its landmark International Coffee Agreement 2022, formally welcoming to the table for the first time in 60 years the world’s biggest coffee retailers, roasters, and manufacturers, together with coffee farmers.

Going forward, the private sector and civil society will participate as affiliate members in key discussions and decisions on the sustainable future of global coffee affairs with 75 coffee producing and importing nations, ICO member governments. The goal of the Agreement is to find new ways to improve conditions in an over US$300 billion a year industry that provides a livelihood for millions of people from farmers to baristas across the world.

Indeed, coffee farmers have suffered much in the wake of a 2019 coffee pricing crisis, extreme weather including droughts, flooding, frosts and blight, resulting in crop losses and prompting many to quit a business that had been in their family for generations. Smallholders, who only have less than one or two hectares of land each to produce coffee, for example, are the most vulnerable with incomes of just US$500 a year.

The Chair of the International Coffee Council, Ambassador Iván Romero-Martínez of Honduras, stressed that with the approval of the new Agreement the Council marked a new era for the ICO, its members, the global coffee sector and for millions of coffee farmers whose work, every day, ‘allow us to taste a wonderful coffee.’

He further pointed out that ICO members showed the world that the coffee sector is strong and united as ICO reaffirms itself as the centre of the “coffee diplomacy”, committed to making the coffee value chain more sustainable, inclusive, and resilient.

“We are entering a new era of cooperation with the private sector thanks to the landmark International Coffee Agreement 2022,” says Vanusia Nogueira, who joined in May as ICO’s first female Executive Director.

“The arrival of the world’s biggest high-street names and manufacturers as well as smallholders means that the whole coffee value chain can now address the biggest challenges facing the global sector in a way that is fair for all,” she adds.

The new International Coffee Agreement goes beyond the traditional divide between exporting and importing members as all members are committed to working together to address the increasing challenges of the coffee industry. The private sector and Government entities will coordinate strategies to address more efficiently those challenges. This will benefit producers across 50 countries as coffee growers and their associations will be able to raise their concerns directly with retailers and manufacturers.

Moreover, the new Agreement gives a clear and firm mandate to the ICO Secretariat to assist Members in putting together coffee sector development projects and mobilizing resources in areas such as pest and disease control, climate change adaptation among other mitigating strategies. This comes at a time when expanding demand for coffee will contribute to maintaining a balance between supply and demand, supporting fair market prices.

“The industry has changed dramatically in the last 30 years in terms of governance and value distribution between producing and consumer nations. We can now come together and put a bigger emphasis on the development of the global circular coffee economy. Ultimately, we want to create a brighter future for millions of coffee farmers by adhering to the United Nations’ Sustainability Development Goals and work for more transparency, quality and fair pricing for billions of consumers. The new Agreement is a huge step in this direction,” Nogueira adds.

The new Agreement represents a fresh mandate for the ICO. It is the seventh of its kind since 1962 after the first International Coffee Agreement defined coffee export quotas at the United Nations in New York. The 2022 Agreement has come a long way since then, now that the ICO can bring all parties to the table for the first time and tackle challenges through international private and public cooperation, involving its Member Governments, which represent 93 percent of world coffee production and 63 percent of world consumption. Today, the world drinks more than 2 billion cups of coffee a day.

“The new Agreement is an effective instrument to paving the way to a more unified front, establishing a consensus and shared vision on how to best implement and promote actions by governments and the private sector, while also engaging all key coffee-related institutions, NGOs, international and financial institutions plus other development partners, research bodies and academia,” says Ms Nogueira, who previously represented Brazil, the world’s biggest coffee producer, in global coffee affairs as the Executive Director of the Brazilian Specialty Coffee Association.

While the ICO will not change its intergovernmental nature, as part of the Agreement, the current Coffee Public-Private Task Force is integrated into the ICO as the Coffee Public-Private Working Party. On top of this, the Private Sector Consultative Board will be transformed into the Board of Affiliate Members, creating a new institutional framework and leading to the nongovernment affiliation since 1963 when the ICO was established in London.

The Agreement’s key points also redefine the ICO’s internal voting system and members’ contributions to better reflect the transformation in the global coffee chain over the last 30 years, accounting for distortions between producing [exporting]and consumer [importing] countries as well as Arabica versus Robusta coffee producing nations. The change in membership contributions to the administrative budget will increase the financial sustainability of the Organization and its capacity to carry out its mandate.

In terms of production, the world produces 4.18 million tonnes of Robusta coffee, or 69.67 million 60kg bags a year, and 6.07 million tonnes of Arabica, or 101.16 million 60kg bags, annually as of 2020. This is up from 1.74 million tonnes of Robusta and 4.34 million tonnes for Arabica coffee in 1991.

Uganda’s withdrawal from ICO

At the beginning of February 20222, the Uganda Coffee Development Authority [UCDA] said the country had temporarily unsubscribed from the ICO pitting UCDA against a section of players in the coffee sector.

While UCDA has assured the players that export volumes will not reduce due to the decision, farmers say that being denied the ICO certificate of Origin means they won’t access key markets.

“Any ICO Certificate of Origin issued by the UCDA dated after 1 February 2022 will not be valid,” the ICO said in a Feb. 2 statement.

Established in 1963, the ICO brings together governments that represent 98 percent of world coffee production and 83% of world consumption. Uganda has been a member since its inception.

To allay fears of not accessing some markets, UCDA Managing Director Emmanuel Iyamulemye cited both importing and exporting countries that are not members of the organization but are still trading in coffee.

“Uganda not joining the two-year extension of ICA 2007 will not affect coffee exports or trade in any way. This is because ICO does not regulate the coffee trade. Non-ICO members including Guatemala, Paraguay, and China, export coffee in the same way while the United States and Turkey are still importing coffee after leaving ICO,” the director said.

“During the two years, Uganda will still issue the ICO Certificate of origin on coffee exports. All exports of coffee from members and non-members of ICO have country codes on their certificates of origin. The certificates of origin were imperative to ascertain full implementation of the quotas and after the quotas were suspended in 1989, the Certificate of Origin is voluntary; its issuance is to help in the compilation of statistics to submit to relevant government agencies and URA purposes in the collection of the Coffee Cess.”

Exporters will now use certificates issued by the Uganda Chamber of Commerce and Industry where they will pay Shs20, 000 per consignment, according to Iyamulemye who also noted that there are others issued by regional blocs like the Common Market for Eastern and Southern Africa (COMESA).

58 percent of Uganda’s coffee goes to Europe, according to UCDA, and most of the countries which take in our coffee like Italy [30.03 percent], Germany [10.15 percent], Belgium [6.34 percent], and Spain [5.61 percent] and Germany are still members of the ICO.

Commenting on the withdrawal, farmer and administrator at Rugyeyo Coffee Robert Kabushenga said a few weeks ago: “Without ICO Certificate of Origin, Uganda’s coffee has no proof that it is that. The UCDA certificate has to be accepted by ICO and other individual countries where our coffee goes before it can be a replacement. We should have done this ahead of the withdrawal. We have no brand ID.”

According to Kabushenga, the development could also affect Uganda’s access to funding from European countries.

“There is tax-free access for our coffee in Europe, a lot of foreign funding supporting interventions in the coffee sector and roasters supporting farmers because of ICO membership. Standardization and certification that we are trying to achieve is set in this forum, a useful databank,” he said.

“If there is reduced access to the lucrative markets because of this action  and yet we are driving increased production, then we shall have large volumes for a small market, which will lead to a drop in prices.”

Uganda’s withdrawal from the Organisation is hinged on delayed amendments that should be made in the International Coffee Agreement 2007 yet discussions have been ongoing since 2018 and there’s a possibility the Agreement might remain operational for the next eight years.

As the seventh-largest coffee producer in the world and the largest export in Africa, according to Iyamuleme, protest is the only means through which Uganda can realize its demands.

Uganda’s demands before re-joining ICO:

Promotion of Value addition: Uganda needs unconditional market access that allows for the export of value-added coffee not only green coffee. The new coffee agreement should have increased focus on value addition with protracted programs that aim at transferring values to the farm gate.

For example, a cup of coffee at the coffee shop is more valuable than 1 kg of coffee at the farm gate. 

Barriers to exporting processed coffee: The importing countries impose escalating tariffs and restrictions on imports of value-added coffee. For example, Germany has a Coffee tax on value-added coffee, which dates back to the 17th Century. In 2009, there was the last revision, including tax rate adjustment: For 1 kg roasted coffee € 2.19 Euros; and For 1 kg of soluble coffee € 4.78 Euros.

Under the German Coffee Tax Law, retailers established in other countries selling coffee to Germany must appoint a fiscal representative located in Germany. This requirement prevents retailers from other countries to freely import coffee into Germany and adds additional burdens that make it more difficult in particular for small or medium-sized companies to enter the German market and sell coffee at a distance.

In addition to Germany, Belgium and Denmark also charge the tax. These barriers should be negotiated and removed, in order to create even more value for the Uganda coffee sector.

There are no taxes on green beans. This encourages import of green beans, which are re-exported to other countries. Uganda has repeatedly decried the lost opportunity in our export of raw coffee and thus appropriate negotiations are urgently required.

Coffee price volatility: Coffee price volatility is threatening the incomes of farmers and the sustainability of the coffee sector. There is urgent need to address and solve the structural weaknesses.

ICO Composite Indicator Price: The ICO collects prices from ‘agents’, namely: Complete Coffee Coverage in the US’ in the Coverage), Germany Coffee Association, French Coffee Association and the prices from the three agents are used in the calculation of the ICO composite indicator price which is used as a benchmark for daily trading around the world.

The ICO Composite Indicator Price was created for a regulated market when the quotas were in place up to 1989. This is outdated and needs to be revised.

Classification of coffees: Uganda is the birthplace of Robusta coffee while Ethiopia is the origin of Arabica coffee. Uganda’s coffee production consists of 80 percent Robusta and 20 percent Arabica. Countries producing Arabica coffee are grouped in one of the three groups established in the agreement namely Colombian mild Arabicas, Brazilian Natural Arabicas and other mild Arabicas according to the Arabica they produce.

Uganda as an Arabica coffee producer is not recognized in any groups. In addition, there is only one group for Robusta coffee producers which deprives Uganda of the recognition and promotion of its distinctive quality Robusta coffee. This concern has not been addressed in the new draft Agreement, though we have raised it. 

 Membership votes and contributions to ICO: The draft Agreement then proposed to use of a mix of 50 percent value and 50% volume of exports and imports for the determination of votes and contributions. Uganda’s position is that contributions should be based on 100 percent value rather than volume since Uganda exports high volume of Robusta coffee whose value is lower than Arabica coffee of same volume.

In addition, the new coffee agreement should address re-exports. For example, in 2019 Germany imported 18.1 million 60 kg bags of green beans valued at €2.3 billion. In the same year, Germany re-exported 5.93 million 60kg bags of green beans and exported 3.93 million 60kg bags of roasted coffee beans at a value of €1.3 billion.

However, the international coffee Agreement does not consider contributions to ICO based on re-exports of green beans and exports of roasted coffee.

The increasing role of the Private Sector: Whereas the ICO is an intergovernmental organization, the private sector (multinational companies) has taken over the affairs of the organization and influence major decisions. The private sector bodies include Private Sector Consultative Board [PSCB], Coffee Public-Private Task Force [CPPTF] and CEO and Global Leaders Forum [CGLF].

The new Agreement has proposed to establish Members comprising the private sector and ICO the civil society. Uganda says this will weaken the role of governments in decisions.

Projects to address challenges in coffee-producing countries: Since Member 2012 the Common Fund for Commodities stopped giving funding to ICO States via the ICO. All countries are able to apply for loans directly.

The has not found an alternative funding institution for projects to address challenges of coffee farmers including climate change, low production 1.7 million and productivity, pests and diseases, price volatility, etc. faced by coffee farmers in Uganda whose livelihood depends on this commodity.

Increased budget for programmes: Since 2007, the UN is no longer the Depositary of International Coffee Agreement. However, the ICO staff continue to be paid UN salary scales.

This is costing members a fortune in contributions with 73 percent of the Administrative Budget allocated to personnel costs. Of the overall budget of £1,881,000, personnel costs and premises account for 80% while programme of activities cost £67,000 [3.56 percent].

The new International Coffee Agreement should address this imbalance and allocate more resources to programmes by creating a technical fund and split the budget into administration 40 percent and technical fund [60 percent].

In the next two years

UCDA says suspending membership for two years will give Uganda a chance to use the resources to further enhance the coffee sector and focus on the aspirations of Coffee Roadmap launched in 2017 by President Yoweri Museveni, to increase production to 20 million bags by 2025/30.

Uganda was paying an annual contribution coffee of £43,000 to ICO.

Uganda is also engaging with other African countries to develop strategies to enhance production and also start a campaign to boost domestic coffee consumption in Africa. In this regard, UCDA says the strategy is to strengthen the coffee sector regionally by advocating projects through the InterAfrican Coffee Organization (IACO).

https://thecooperator.news/ico-members-receive-draft-of-new-international-coffee-agreement/

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