Portland Roasting Company:

Farm Friendly Direct

Case Study CGLS-RR-10-01

MadeleineE.Pullman,PhD BrandonArends,MIM MarkLangston,MBA GregPrice,MBA GregStokes,MBA PortlandStateUniversity

CGLS
Center for Global Leadership in Sustainability School of Business Administration Portland State University P.O. Box 751 Portland, OR 97207-0751

PortlandRoastingCompany:FarmFriendlyDirect Coffeeisnowaboutnotonlyfindinggreatcoffeebutshowcasingwhoyourebuyingfrom.Itsabout sustainability.Whatsdrivingtheindustryispeoplethinkofcoffeeasacommoditythatspickedbyhand. Theresalotofworkinvolvedinit.Therearepeoplebehindthiscoffeebeanandthatsthecuttingedge stuffrightnow. MarkStell,ManagingPartner,PortlandRoastingCompany Introduction AsMarkStellwaitedtoboardtheplanetoBujumbura,thecapitalcityofBurundiinAfrica,he contemplatedanexcitingmarketopportunityforhisspecialtycoffeeroastingcompany.Withinafew shortweeks,StellandhismanagementteamwerepitchingFredMeyer,amajorregionalgroceryretailer. Thisaccountwouldprovideaccesstoalargeretaildistributionchannelandrepresentedasignificant businessopportunityforPortlandRoastingCompany(PRC).NotonlywouldthisaccounthelpPRCachieve growthgoals,potentiallyboostingrevenuebyasmuchas25%,itwouldgivePRCunprecedentedexposure toretailconsumers.Asawholesalecoffeecompany,PRCreliedheavilyonretailerstopromoteitsbrand directlytoconsumers.FredMeyerwouldfeaturePRCcoffeeandpromotionalmaterialingrocerystores throughoutthePacificNorthwest.Ultimately,thiswasanopportunitytobuildthePRCbrand.Lastyear, Stellhadmadesignificantinvestmentsinnewroastingandpackagingequipmentandheknewhehadthe capacityandinfrastructuretosupplyalargeaccount.PRCwouldalsopromotethevirtuesoftheFarm FriendlyDirect(FFD)programandthecompanyslongtermcommitmenttosustainability. Fromthebeginning,PRChaddevelopedtraderelationshipswithindividualcoffeegrowers,paidpremium prices,andinvestedadditionalfundsinlocalprojectsthatdirectlybenefitedthelivesofcoffeefarmers andtheircommunities.TheFFDprogramisfeaturedonthecompanywebsite,inmarketingmaterialsand onproductpackaging(Appendix1).In2005,PRCwasawardedtheprestigiousSustainabilityAwardbythe SpecialtyCoffeeAssociationofAmerica(SCAA).YetdespitethemeritsoftheFFDprogram,FarmFriendly DirectwasrelativelyunknowncomparedtoFairTrade,OrganicandRainforestAlliancecertifiedcoffees. PRCwouldhavetoconvinceFredMeyersthatFarmFriendlyDirectcoffeewassuperiortoconventional thirdpartycertificationsandcompetitorsdirecttradeprograms.StellalsorealizedthattheFFDprogram alonewouldnotbesufficienttosecuretheaccount.Groceryretailerswerealsoconcernedaboutprice, orderfulfillment,brandstrength,marketingsupport,productqualityandcustomerserviceinadditionto thesustainabilityattributesofaproduct. Asthelastboardingcallrangoutovertheloudspeaker,Stellpickeduphislaptopbagandheadedforthe departuregate.Stellwasalwayssearchingforhighqualitycoffeeandmadefrequentinternationaltripsto sourcefromdifferentgrowingregions.DespitehisfocusontheupcomingpitchtoFredMeyer,he couldnthelpreflectingonthelongtermoutlookforthecoffeeindustryandthechallengesfacingcoffee growersaroundtheworld.Withglobaltemperaturescontinuingtorise,theareaoflandaroundthe equatorcapableofgrowingcoffeewasshrinkingfast.Stellwaseagertospendtimewithhisnewsupplier fromSogestalKayanza,inNorthBurundi.Hewasplanningtospendaweekgettingtoknowthefarmer andworkingtoimproveproductquality.Stellhopedtoestablishadirecttraderelationshipwiththis farmerandnegotiateanFFDprojectthatwouldmosteffectivelyaddresslocalneeds.Yetdoingsotook time,theresultsofsuchprojectsweredifficulttomeasure,andthepositiveimpactsonsustainability werenoteasilycommunicatedtocustomersintheUS.Despitethesechallenges,Stellbelievedthedirect trademodelwassuperiortoconventionalcertification,butwoulditgainenoughmomentuminthecoffee

industrytoensurethelongtermviabilityofgrowingregions?Stellwasmotivatedtogrowhiscompany andextendthepositiveimpactsofFFD,buthowcouldPRCconvincecustomerslikeFredMeyerstobase theircoffeepurchasedecisionsontherelativemeritsofFFD?Stellponderedthesequestionsand continuedtoworkonhispitchduringthelongflight. CompanyProfile PortlandRoastingCompanywasheadquarteredinthebustlingcentraleastsideindustrialdistrictof Portland,Oregon.The20,000squarefootfacilitycontainedroastingequipment,warehousespace,a coffeetastingfacilityandofficesfor27employees.PRCscorebusinesswassourcing,roastingand distributinghighqualitycoffeestowholesalecustomersincludingretailcoffeeshops,restaurants, businesses,foodmerchantsandinstitutions.ConsumerscouldpurchasePRCcoffeesdirectlythroughthe companywebsite.Thecompanysoldcoffeeequipmentandassociatedsuppliesincludingalineof flavoredsyrups.Coffeesweresourcedfrommorethan20differentcountries(Appendix2)andFarm FriendlyDirectrelationshipsexistedwithfarmersandcooperativesinGuatemala,CostaRica,ElSalvador, Ethiopia,India,PapuaNewGuinea,SumatraandTanzania(Appendix3).WorkingwithStellonthe managementteamwerePaulGilles(VPofOperations)andMarieFranklin(NationalSalesManager). Gillesdutiesweretooverseeproduction,customerservice,humanresources,riskmanagement, internationalbusinessdevelopmentandgeneraladministration(Appendix4).Franklinledateamofsales, marketingandcommunicationsprofessionals.AllPRCemployeeswereencouragedtowriteblogsabout coffeeonthecompanywebsiteandmosthadalreadyvisitedcoffeefarmsthatsuppliedthecompanys coffeebeansinordertobetterunderstandthesupplychainandfarmerrelationships. StellhadparticipatedintheUnitedNationsConferenceonSustainableDevelopmentin1992inRiode Janeiro,andasamemberofastudentdelegation,helpedtopublishtheYouthActionGuideon SustainableDevelopment.HisexperienceinBrazilexposedStelltotheexportsideoftheindustryand inspiredhimtolearnmoreaboutthecoffeebusiness.Afterabriefapprenticeshipwithalocalroasterin Portland,StellopenedaretailcoffeeshopcalledAbruzziCoffeeRoastersin1993.Threeyearslaterhe soldthebusinessandopenedPRCwithbusinesspartnerToddPlummer,choosingtofocusexclusivelyon thewholesalecoffeebusiness.Stelldescribedhisoriginalvisionforthecompany,Whatwesawwasa nicheforsmallqualitycoffeeroastersthathadcreativemarketing,creativedesignandupscalepackaging. WewantedtobesynonymouswithPortlandandwewantedtobuysustainableproducts,andmy involvementwiththeEarthSummitin92waskindofthedrivingfactortohelpussteerourdirection.We wantedtobeassustainableaspossibleandthathasalwaysbeenourmotivation. InthefirstyearofoperationPRCsold40,000poundsofcoffee.SincethenPRCachievedanaverageof 20%annualgrowthandin2007thecompanysold600,000poundsofcoffee,yieldingapproximately$5 millioninrevenues(Appendix5).In2006,2007and2008,PRCwasafinalistforRoastMagazinesRoaster ofTheYearawards,andsince2005,PRChasmadethePortlandBusinessJournalslistof100fastest growinglocalbusinesses.Afterlearningthepitfallsofhavingonecustomerrepresent40%oftotalsales, PRCsubsequentlydiversifiedacrossmarketsegmentswiththelargestcustomerrepresentingnomore than20%oftotalsales.Inanticipationofcontinuedgrowththroughtargetinghotels,massgrocers, universitiesandotherinstitutionalaccounts,PRCinvestedinnewroastingandpackagingequipmentin 2008. CoffeeProductionandTrade Coffeeisproducedinmorethan50tropicalcountriesgenerallyaround23.5degreesnorthorsouthofthe equator,withapproximately63%producedinLatinAmerica,22%inSEAsiaand14%inAfricai.Similarto

wine,coffeebeansfromdifferentregionshavedistinctcharacteristicsdisplayedinaroma,body,acidity andnuancesofflavor.Thesevariationsaredependentnotonlyontheappellation,orgeographical location,butalsothevarietalgrownandthemannerinwhichthecoffeeisproduced.Thefirstflowers appearoncoffeeplantsduringthethirdyear,butproductionisonlyprofitableafterthefifthyear.Coffee cherriestypicallyripenaroundeightto10monthsafterfloweringandinmostcountriesthereisonlyone majorharvesteachyear.Shadegrowncoffeeoftenresultsinberriesripeningmoreslowly,producing loweryieldsbutwithahigherqualityandflavor.Ripenedcoffeecherriesaretypicallyharvestedbyhand, whichisverylaborintensive.Somecoffeecropsarepickedallatonce,butforbetterqualitycoffeesonly theripecherriesarepickedandforthisreasonharvestingmaybeundertakenasmanyasfivetimes duringaseason.Theripeberrieshavehigheraromaticoilsandlowerorganicacidcontent,lendingtoa morefragrantandsmoothflavor.Becauseofthis,thetimingofcoffeepickingisoneofthechief determinantsoftheendproduct. Aftercoffeeispicked,itmustbeprocessedquicklytoavoidspoilage.Eachcoffeecherryusuallycontains twocoffeebeans,coveredbyasilveryskin,alayerofparchment,apectinlayer,apulplayerandfinally theouterskin(Appendix6).Theseouterlayersmustberemovedinoneoftwoprocessingmethods.The dryprocessingmethodisusedinaridcountrieswherewaterisscarceandhumidityislow.Freshlypicked cherriesaresimplyspreadoutonlargesurfacestodryinthesun.Inordertopreventthecherriesfrom spoiling,theyarerakedandturnedthroughoutthedaythencoveredatnight.Whenthemoisturecontent ofthecherriesdropsto11%,thedriedcherriesaremovedtowarehouseswheretheyarestored.Inwet processing,thefreshlyharvestedcherriesarepassedthroughapulpingmachinewheretheskinandpulp isseparatedfromthebean.Thebeansarethentransportedtolarge,waterfilledfermentationtanksfor 1248hourswherenaturallyoccurringenzymesdissolvethepectinlayer.Thebeansarethenremoved fromthetankanddried.EduardoAmbrocio,whoworksfortheGuatemalanNationalCoffeeAssociation asamastercupperandqualitycontrolexpert,believedtheriskiestprocessintheindustryiswetmilling. Youneedtomanagethefermentationprocesswhilethecherriesareinthetank,andyouneedto carefullycontrolthedryingprocess.Everythingisachainofdifferenttimesandeventsthatneedtobe preciselycontrolled."Withsomanyvariablesinvolvedinwetmillingthereisampleopportunityforerror, butwetprocessingcanenhancethebrightnessandfloralacidityofcoffees. Inordertocompeteagainstthelargerestates,manysmallgrowersiihaveformedcooperativestohelp negotiatebetterpricesandincreaseaccesstomarkets.Mostgrowersdrythecoffeethemselvesandthen selltheunprocessedcoffeetointermediariesformilling.Thisinvolvesamechanicalhullingprocessthat removestheparchmentlayerfromwetprocessedcoffeeorremovestheentiredriedhuskfromdry processedcoffeecherries.Thecoffeebeansarethengradedandsortedbysizeandweight.The intermediariesoftenmakealargerprofitsincesmallgrowersmaynothavedirectaccesstobuyers,and arethusforcedtoacceptwhateverpricetheintermediaryoffers.Fromtheintermediary,thecoffeeis thensoldtoexportersorbrokerswhobuyandsellcoffeeoncommission,beforepassingitonto importers.Importersthensellthebeanstoroasterswhoroast,packageandmarketthecoffeeto distributorsandretailers.Roastingisgenerallyperformedintheimportingcountrybecausecoffee freshnessdiminishesrapidlyafterroasting.Thiswaytheroastedbeansreachtheconsumerasquicklyas possibletoensurequality. LargecoffeeimportersandroasterspurchasecoffeefuturesandoptionstradedontheIntercontinental Exchange(ICE).TheICEFuturesU.S.CoffeeCcontractisthebenchmarkforworldcoffeeprices.The priceofcoffeehasfluctuateddramatically,fallingaslowasUSD$0.415/poundin2001andhaving reachedashighas$3.148/poundin1997(Appendix7).Thesepricefluctuationsareduetomarket

influencessuchasnaturaldisasters,supplysurplus,transportationcosts,politicalstabilityinproducing countriesandinvestorspeculation.Forexample,afrostinBrazilin1975andadroughtin1985ledtoa sharpdropincoffeeproductionandsignificantincreasesincoffeeprices.Thispricevolatilityis problematicforbothfarmersandcommercialroasters,directlyimpactingprofitmarginsandproduction costs.Justoneyearoflowmarketpricescanpotentiallyputasmallfarmeroutofbusiness.Coffee revenueisalsoasignificantportionoftheGDPformanyequatorialcountries.Burundi,Ugandaand Ethiopiaearnmorethanhalfoftheirexportrevenuesfromcoffeealone.Theeconomicdisparitybetween producingandconsumingcountries,andthedeterminationofafairprice,haslongbeenthesubjectof activedebatewithinthecoffeeindustry. TheFarmersPerspective Manyofthecountrieswithanappropriateclimateforproducingcoffeeareinthedevelopingworld.This createsauniquesetofchallengesandopportunitiesforthecoffeeindustry.Manyofthetools, techniques,resourcesandtechnologiesthatfarmersinthedevelopedworlduseareeithernotaffordable ornotavailabletothevastmajorityofcoffeefarmersindevelopingcountries.Unfortunately,thereisan inverserelationshipbetweenthequalityofacoffeebeanandthevolumeofcoffeethattheplantcan produce.Plantsthatproducehighqualitycoffeegenerallydonotproducehighquantitiesofcoffeebeans. Generally,thehigherthequalityofthecoffeethemoreexpensiveitistoproduce.Inadditionto processing,handlinganddelivery,specialtycoffeerequiresmoreresources,timeandattentioninorderto achievethehighestlevelofquality.Thebeansmatureatdifferenttimesontheplantandmustbehand pickedonlywhentheyareripe.Ambrocionoted,"Coffeeisalotlikegrapesandmanyotherfruits.We havevarietiesthatprobablygiveyouagoodyieldattimesofproduction,butlowquality.Asafarmer,you aregoingtofocusoneitherhighquantityorhighquality."DonJorge,ownerofRanchoCarmela,whichis locatedinaregionofGuatemalawherePRCpurchasescoffee,hasbeenproducinghighqualitycoffeefor decades.DonJorgesaidthathespendsanywherefromUSD$0.700.85/lbtoharvesthisspecialtycoffee dependingontheclimate,laborrateandotherextenuatingcircumstances.Jorgestatesthatinsellingto exporters,InagoodyearIcangetalmostadollarperpoundformybestbeans,butsometimesIhaveto settlefor80cents."DonaMiguelina,ownerofElPaternal,oneoftheoldestcoffeefarmsinNicaragua, andsupplierofspecialtycoffeeforPRC,confessed,"Thishasbeenaverydryyear.Ifwedon'tgetsome rainsoonwewillnothaveaverygoodharvestthisyear.ThereisalotthatIcandotoensureaquality harvest,butifitdoesn'train,whatcanIdo?"Donahasimplementedanumberofdifferentwatersaving measures,butmostcoffeefarmsmustrelyonrainwaterforirrigation,andwithoutit,theiryieldsand theirprofitssuffer. Unfortunatelyformanyfarmerstheharvestseasonislong,averagingtwotofourmonths.Itthentakes timetoprocessthebeans,andgetthefinishedproductreadytoship.Fromthefirstcherrypickedtothe timethebeanarrivesatitsfinaldestinationcantakeuptosixmonths.Formostfarmers,thisisalong timetowaitforpayment,particularlywhenalloftheircostsforgoodssoldareincurredupfront.Thiscan createaheavyfinancialburdenoncoffeefarmsofallsizes,especiallythesmallerfarmsandpremium producerswhotypicallyhavehighercostsofproduction.Historically,thisiswheretheexportershave addedvalueinthesupplychain.Exporterswilloftenfinancethecroponceitisreadytoship,or sometimesbeforethecropisharvesteddependingontheneedsofthefarmer.ArnoldoLeiva,General ManagerofTheCoffeeSource,Inc.,andacoffeebrokerforPRC,saidthattheroleoftheexporterhas beenchangingoverthelastdecade.Leiva,whooperatesoutofSanJose,CostaRicabutworkswithcoffee farmersandpurchasescoffeefromallovertheworld,stated,"Oneoftheservicesweprovideforboth theproducersandtheroastersisfinancing,becausewepaythefarmerupfrontandtheroastergets credituponarrival.Inessenceitisa90dayloan,orporttoportplusnet30fromarrival.Such

arrangementsallowfarmerstopayforthelaborandprocessingbeforethecrophasbeenharvestedand fortheroasterstopurchasecoffeebeansastheyneedthemversustryingtobuyalltheyneedforthe season.Thishelpsroastersmaintainmorestablecashflow,andinsomecaseseliminatestheneedfor expensivestorageandwarehousing.Leivacontinuesbysaying,"Weprovideahedgingforboththefarmer andtheroaster.Thatway,bothcanfixtheirpriceatanygiventime,butnotnecessarilyatthesame time." AccordingtoDonaMiguelina,themostsignificantchangeintheindustryforcoffeefarmerssincethetime ofhergrandfatherhasbeentheincreaseinmarketinformation.Justoveragenerationago,manyfarmers hadnoknowledgeofthevalueofcoffeeinforeignmarkets,butnowitisaseasyaslookingupcurrent pricesontheinternet.Ambrociostatedthataccesstoinformationisreallybenefitingthefarmerand, "Theynowknowmoreaboutmarkets,prices,promotion,andperhapsmostimportantly,thevalueof consistentquality.Everythingisbaseduponqualityandthatisthefirstthingthatpeopleneedtobe convincedof."Accesstoinformationhasalsoledtoagrowingtrendindirectrelationshipsbetween farmersandroasters.Byreducingthenumberofmiddlemen,bothroasterandgrowerenjoyhigher profitsandroasterslikePRCcanaddvaluetoconsumersbymarketingtheadditionalvaluetheycreatefor farmers.AccordingtoLeiva,"Thelongtermrelationshipsthatfarmersaredevelopingwithbuyers,like theonewehavewithPRC,actasasafetynetforthemandallowsthemtoforecasttheircashflowfor morethanoneyear.Theyknowthemarketsaregoingtocomebacksincetheroasterstendtobemore loyalandlesspricesensitive,sincethey'remorefocusedonquality."JorgeandMiguelinaagreethat mutuallybeneficiallongtermrelationshipswithbuyers,especiallybuyerswillingtopayapremiumprice, isoneofthemostvaluableassetsforacoffeefarmer. Inadditiontofluctuatingcoffeeprices,farmerscontendwithmanyotherchallenges.Therisingvalueof landforrealestatedevelopmentinmanyCentralAmericancountries,aswellascompetingcrops,has pushedthousandsofacresoutofcoffeeproduction.Inaddition,theaverageageofcoffeefarmersis risingandtheyoungergenerationisoftennotinterestedinfollowinginthefootstepsoftheir predecessors.InLeiva'shomecountryofCostaRicathisproblemisgrowing,"Coffeehasbeengreatfor thefamilyandallowedfarmerstosendtheirkidstoschoolandevenuniversity.Butnowthattheyhave degrees,theywanttogoandworkforIntel,notinthefields."Meanwhile,laborratesarealsogrowingat analarmingrate,drivingcoffeeproductioncostsevenhigher.InCentralAmerica,theexpansionofthe PanamaCanalisexpectedtodriveuplaborcoststhroughouttheentirecontinent.Itishardtoimagine thatthisoneseeminglyunrelatedeventwilllikelyincreasethecostofacupacoffeeforconsumersall aroundtheworld. HistoryoftheUSCoffeeIndustry AmericasdemandforcoffeegrewexponentiallyfollowingtheWarof1812,whenBritaincutoffaccessto teaimports.Bytheturnofthe19thcentury,asmallnumberofentrepreneurialcoffeeroastingcompanies achievedmultistatedistributionfacilitatedbyinnovationsinproductiontechnology,transportationand massmedia.In1864,theearlypioneerJohnArbuckleinstalledthenewlypatentedJabezBurnsroasting machineinhisPittsburghplantandlateraddedautomatedpackagingequipment.Arbucklebeganselling onepoundpackagesofcoffeeinthinpaperbags,underthebrandnameAriosa.Salesanddistributionon theEastCoastsoaredandin1913theArbucklefamilylaunchedtheYubanbrand.Otherbrandsgained regionalandnationalprominenceduringthisperiodincludingFolgers,HillsBrothers,MJB,Chase& SanbornandMaxwellHouse.Thelargerofthesecompanieswereabletodistributenationally, maintainingfreshnessbyshippingtheircoffeeinvacuumsealedcans.Consumerssteadilymovedaway frompurchasingcoffeeinbulktobuyingbrandedcoffeeinsmallpackages.Bythe1950sthemajorUS

coffeeproducerswerecompetingaggressivelyformarketshareandinvestedheavilyinnationalradioand televisionadvertising.Americanconsumersfavoredconvenienceoverquality,drivinggrowthinthe instantcoffeemarket.Todefendagainstincreasingcompetition,thegrowingpopularityofinstantcoffee andrisingproductioncosts,roastersbeganloweringpricesandsubstitutinglowerqualityRobustabeans intheirblends.Meanwhile,ayoungergenerationofconsumerswaschoosingsoftdrinksovercoffee. Theseindustryforceswerethecatalystforsignificantindustryconsolidationduringthe1960s.The downwardspiralofpricecuttinganderosionofqualitycontinuedfordecadesandbythelate1970s,the stagewassetforanewgenerationofcoffeeentrepreneursiii. TheUSSpecialtyCoffeeMovement AlfredPeet,anemigrantfromTheNetherlands,recognizedthelackofqualitycoffeeintheUSand openedhisfirstcoffeehouseinBerkleyin1966.Byusingqualitybeansandroastinginsmallbatches,Peet offeredhighqualitycoffeetolocalconsumersandsuccessfollowed.Peetsearlysuccessinspiredthree collegefriends,JerryBaldwin,GordonBowkerandZevSiegl,toopenacoffeeshopinSeattlesPikePlace Marketin1971sellingwholebeansandsupplies.TheynamedthestoreStarbucks.Manymore entrepreneursbegantorecognizethemarketopportunityforroastingandsellingwholesalespecialty coffeestogourmetgrocersandservingpremiumbeansandfreshbrewedcoffeeinretailcoffeehouses. Duringthe1970sasmallyetsteadilyincreasingnumberofspecialtycoffeemerchantsopenedbusinesses incitiesalongtheEastandWestcoastsandbeganmakinginroadsintosupermarketchannels.The fledglingSCAAwasformedin1982by42originalchartermembers,atatimewhenspecialtycoffee accountedforlessthan1%oftotalUScoffeesales. DuringabusinesstriptoMilan,StarbucksDirectorofMarketing,HowardSchulz,observedthepopularity ofespressobarsandvisualizedbringingtheItaliancafexperiencetoAmericausingpremiumcoffee.In 1984SchulzconvincedStarbucksownerstoaddanespressobarinsideanexistingstoreandtheventure becameaninstanthit.SchulzleftStarbucksthefollowingyeartoopenhisowncoffeeshop,IlGiornale. Withthebackingoflocalinvestors,IlGiornaleacquiredStarbucksin1987andasCEO,Schulzimmediately embarkedonanaggressivegrowthstrategydrivenbynewstoreopeningsinmajorUScities.Starbucks wentpublicin1992andtheIPOprovidedcapitalforrapidexpansionbothdomesticallyand internationally(Appendix8).OtherlargeregionalspecialtycoffeebrandsincludingGloriaJeans,Brothers GourmetCoffee,TheCoffeeConnection,SeattlesBest,CaribouCoffeeandCoffeePeoplealso experiencedrapidgrowthduringthistime. Followingmorethanadecadeofgrowthandconsolidationamonglargeretailcoffeebrands,thespecialty coffeeindustryremainedfragmented.Thenumberofbusinessesprovidingproductsandservicesinthe specialtycoffeeindustrydoubledtomorethan26,000from2001to2009.Bythen,theSCAAboasted 1,918memberbusinessesconsistingofretailers,roasters,producers,exportersandimporters,aswellas manufacturersofcoffeeprocessingequipmentinvolvingmorethan40countries.Amongstmembers,the SCAAidentifiedatleast369independentroastersin2009.Thepercentageofadultsdrinkingspecialty coffeehadgrownfrom3.3%tomorethan17%inthepast10years(Appendix9). NewDevelopmentsintheUSCoffeeIndustry TheUShadgrownintothesinglelargestconsumerofcoffee,buyingcloseto25%oftotalglobaloutput. Overall,UScoffeesaleshadgrownatanaveragerateof23%everyyearsince2003(adjustedforinflation) withretailcoffeesalesexceeding$6.5billionin2008iv.AccordingtotheNationalCoffeeAssociation,49% ofAmericans18yearsoldorolderdranksometypeofcoffeebeverage,androughlythreeofeveryfour cupsofcoffeeconsumedwasmadeathomev.Combined,KraftFoodsandProctor&Gamblecommanded

greaterthan50%shareofallroastedcoffeesoldintheUSandmarketednumerouscoffeebrands coveringawidespectrumofpricepointswithinvarioussegments.Yettheselargecompanieswerestill losingsharetosmallerroasters.Starbuckshadgrownintothelargestspecialtycoffeecompany,followed byPeetsCoffeeandCaribouCoffee,butwasincreasinglycompetingagainstnationalfastfoodretailers interestedingainingmarketshare.BothMcDonaldsandDunkinDonutsbegansellingtheirownbrandsof coffeeandespressodrinks(Appendix10). Despitethegrowthinnetsales,consumerswerebuyinglesscoffeebyvolumeandpayingmoreper pound.InSeptember2007,thenumberofStarbuckscustomersfellinAmericanstoresforthefirsttimein thehistoryofthecompany,andin2008thecompanyannouncedtheclosureof600stores.Consumers wereincreasinglypayingpremiumpriceswithexpectationsofhighquality,andgiventheeconomic downturn,itwasanticipatedthatmoreconsumerswerebrewingspecialtycoffeeathome.Meanwhile, foreignmarketswithconsumerswhohadhistoricallypreferredtodrinktea,suchasinEnglandandmuch ofAsia,representedthelargestgrowingmarketsegmentformanyUScoffeecompanies. Inconjunctionwiththeindustrytrendtowardhigherquality,coffeeroastersandretailerswerealso promotingtheircoffeesonthebasisofsustainability.WalmartlaunchedsixcoffeesundertheSams Choicebrandaspartofanexpansionofecofriendlyandethicalproducts.WholeFoodssoldits365 brandofcoffee,notingfairtradepracticesanddirectrelationshipswithmorethan40growers.Kraft GeneralFoodsadvertisedthat30%ofallthecoffeebeansthatwentintoYubancoffeewereofficially certifiedbytheRainforestAlliance.StarbuckspromoteditsSharedPlanetprogramwithstatedgoalsfor ethicalsourcing,environmentalstewardshipandcommunityinvolvement.GreenMountainCoffee Roasters,longrecognizedasanindustryleaderinenvironmentallyfriendlyandsociallyresponsible businesspractices,wasranked11thontheForbes100FastestGrowingCompanieslistin2009.InStells opinion,MostofthegrowthintheSCAAisaroundsustainability,sowhetheritsFairTrade,Organic,Utz CertifiedorRainforestAlliance,sustainabilityiswhatsreallymovingourindustry. CertifiedCoffee Therehasbeensignificantgrowthinthenumberofsustainabilityrelatedcertificationandecolabeling initiativesinresponsetoglobalization.Anincreasingnumberofcorporationsoperategloballyyet environmental,laborandhumanrightsregulationsindevelopingcountriesoftenlagbehinddeveloped countrystandards.Scrutinyhasperhapsbeenmostintensewithinthefoodsector,givenconcernsover healthandsafety.Withinthecoffeeindustry,theconceptofsustainabilitywasinitiallyfocusedon concernsaroundtheenvironmentalandsocialimpactsoflargescalecoffeeproduction.TheInternational CoffeeAgreementof1962establishedaquotasystemthatwithheldcoffeesuppliesinexcessofmarket demandandalsoestablishedqualitystandardsinanefforttomaintainstablepricesandproduction. However,theinitialICAdidnothingtoaddressenvironmentalorsocialconcernsrelatedtocoffee production.TherehavebeenvariousrenewalsoftheICA,withthelatestagreementsof2001and2007 focusedonstabilizingthecoffeeeconomythroughthepromotionofcoffeeconsumption,raisingthe standardoflivingforgrowersbyprovidingeconomiccounseling,expandingresearchandconducting studiesonsustainability. ToaddresssomeoftheshortcomingsoftheICA,anumberofworldwidecoffeecertificationinitiatives havebeenestablishedtoaddresswhatarecommonlyreferredtoasthethreepillarsofsustainability, coveringeconomic,socialandenvironmentaldevelopment(Appendix11).AccordingtoAmbrocio, "Qualityandsustainabilitycomefirst,forthefarmerandtheconsumers.Oncethatisachieved,farmers candifferentiatethemselvesinanumberofdifferentwaystoreachabettermarket,andonewaythey

cancompeteisusingcertifications."Althougheachcertificationhasuniquecriteria,theyrelyon verificationbyindependentthirdpartiestomaintaintransparency.Oneofthechallengesnowfacing coffeecertificationsisbalancingtheneedtomaintainreliabilityandcredibilitywhilealsokeeping certificationcoststoaminimumsothatgrowersareabletoreapeconomicbenefitsfromthepremiumor stablepricespaidfortheircoffees.By2008,certifiedcoffeesamountedtomorethan390,000metric tonnesofcoffeeexports,orcloseto4%oftheworldwidegreencoffeemarket. FairTrade Theconceptoffairtradeemergedmorethan40yearsagothroughalternativetradeorganizationsthat offeredproductspurchaseddirectlyfromsmallproducersindevelopingcountriestoconsumersin developedcountries.ThefirstFairTradecertificationinitiativebeganin1988,triggeredbyasharpdropin worldcoffeepriceswhentheICAfailedtorenegotiatepricequotas.Itwasbranded"MaxHavelaar,"after afictionalDutchcharacterthatopposedtheexploitationofcoffeepickersinDutchcolonies.In1997,the FairTradeLabelingOrganizationsInternational(FLO)unitedMaxHavelaarwithitscounterpartsinother countriesandbecametheinternationalumbrellaorganizationforFairTrade,representing17FairTrade labelingorganizations.FairTrade'smissionisfocusedoneconomicandenvironmentalsustainabilityfor farmersandtheircommunities,whileguaranteeingaminimumpurchasepriceandsocialpremiumto covercostsofproductionandinvestmentsinthecommunity.ThebasepricepaidforFairTradecoffees wasUSD$1.26in2009,withanadditional$0.15addedfororganiccoffees.TheFairTradestandards ensurethatemployeeswhoworkforFairTradefarmsareabletoworkwithfreedomofassociation,safe workingconditionsandfairwages;importerspurchasefromFairTradeproducergroupsasdirectlyas possible,eliminatingthemiddlemanandhelpingfarmerstocompeteintheglobalmarket;FairTrade farmersandfarmworkersdecidehowtoinvestFairTraderevenues;andfarmersandworkersinvestFair Tradepremiumsinsocialandbusinessdevelopmentprojectssuchasscholarshipprogramsand healthcareservices.However,Stell,aswellasothersinthesustainablecoffeemovement,wasconcerned thatasufficientpercentageofthepricepremiumswerenotmakingitpastthecoopstothefarmers.In addition,onlycooperativesofsmallfarmerscanparticipateinFairTrade,excludingbothlargeandsmall individualfarmerswhocannotgetthecertificationontheirown.In2008,closeto66,000metrictonnesof FairTradecoffeewassold. Organic Theorganicmovementbeganin1973asafarmingandcertificationsystem,solelyfocusedon environmentalissues.TheInternationalFederationofOrganicAgriculturalMovementssetsinternational organicstandardswhiletheUSDepartmentofAgricultureoverseestheUSDANationalOrganicProgram thatalsosetsguidelinesforcoffeeroasters,whomustbecertifiedinordertomarketorganiccoffees. Organiccertificationisfocusedonregulatingagriculturalproductionpracticeswiththeaimofeliminating theuseofsyntheticchemicalsthatarecommoninpesticides,herbicidesandfungicides.Inorderfor coffeetobecertifiedandlabeledasorganicintheU.S.itmustbegrownonlandwithoutsynthetic pesticidesorotherprohibitedsubstancesforthreeyears,haveasufficientbufferbetweentheorganic coffeeandtheclosesttraditionalcrop,andincludeasustainablecroprotationplantopreventerosion andthedepletionofsoilnutrients.Theinitialamountofcapitalneededtogrowanorganiccoffeecropis lessthantraditionalcoffeeproductionsinceitdoesnotrequirethepurchaseofsyntheticfertilizersand pesticides,butittypicallyyieldsasmallercropandthusthefarmstendtomakelessmoneyrelativetothe sizeoftheirfarm.Whilethereisnosetpremiumfororganiccoffees,theaveragepriceisroughly20% abovenonorganiccoffeesandiscloselytiedtothequalityofthecoffee.Manysmall,familyowned coffeefarmsareorganicbynecessitysincetheycan'taffordchemicalpesticidesandfertilizers.However, thesesmallfarmsalsocannotaffordtopayforinspectionstoachievethecertification,andthereforeare

unabletobenefitbysellingtheirbeansforhigherprices.Onecommoncriticismoforganiccertificationis thatitfocusessolelyonenvironmentalcriteriawhileignoringthesocialandeconomicaspectsnecessary forsustainablebusiness.AsIsabelaPascoal,marketingmanagerwithDaterraCoffeeexplained,Itis importanttohaveorganiccoffee,butthatdoesntmeanthatyoucanbesustainable.Othercertifications focusonsustainabilitybyestablishingcriteriarelatedtosocialandeconomicaswellasenvironmental factors.In2006,approximately67,000metrictonnesoforganiccoffeewassoldthroughouttheworld. RainforestAlliance TheRainforestAllianceisanonprofit,taxexemptorganizationwhosemissionistoconservebiodiversity throughthepromotionofsustainabilityinagriculture,forestry,tourismandotherbusinesses.Inorderto becertified,coffeefarmsmustmaintainorrestoreenoughnaturalforestcovertoachieve40%shade coverageandtheremustbeaminimumof70treesperhectareandatleast12nativespecies.The RainforestAlliancesocialcriteriafocusonfairpay,healthandsafetybenefits,andschoolingforlocal communities.Iffarmsdonotmeetthesestandards,theycanstillbecertifiediftheyhaveaplantomeet thegoalsandaretakingactivestepstoimplementtheplan.Thecertificationprogramismanagedbythe SustainableAgricultureNetwork(SAN),acoalitionofleadingconservationgroupsinBelize,Brazil, Colombia,CostaRica,Ecuador,ElSalvador,Guatemala,Honduras,MexicoandtheUS.Thefirstcoffee farmswerecertifiedthroughtheRainforestAllianceprograminGuatemalain1995.Acommoncriticism oftheRainforestAlliancecertificationisthataslittleas30%ofthecoffeeinacontainercanbegrown underRainforestAlliancecriteriaandthecoffeecanstillcarrythecertificationseal. AccordingtoLeiva,RainforestAlliancehasbeengrowinginpopularitywithmanyofthefarmersthathe hasbeenworkingwith,butitdoescomewithacost."RainforestAlliancehasaverystrictsetofstandards inregardstothewayyoumanagethefarm,theenvironment,obviously,theforest,howyoutreatthe employees,safetyissueswiththeworkers,anditsgettingvery,veryexpensivetobecertified.Andevery year,theywantmoreandmoreandmorechangesinthefarm,toapointthatthosechangesare challengingthevolumethatthefarmproduces.Ifyoucannotmakesignificantlymoremoneyperpound ofcertifiedcoffee,thenthecostsofmeetingthesestandardsarenotworththeefforttothefarmer. Gainingmarketacceptanceandbuildingperceivedvaluethroughcertificationisnecessarybefore consumerswillbewillingtopaymorecertifiedcoffee.Iftheconsumerwon'tpayapricepremium, farmershavelittleincentivetoinvesttheextraeffortandmoneyrequiredforcertification.InLeivas opinion,"Ifyoucanseethatthepricestodayarenotasgood,andthecostofcertificationisveryhigh,the producersstartquestioningtherealvalueofthisinvestment."In2008,approximately62,296metric tonnesofRainforestAlliancecertifiedcoffeewassold. BirdFriendly TheBirdFriendlycertificationwasstartedinlate1996bystaffattheSmithsonianMigratoryBirdCenter (SMBC).Thecertificationscriteriaarebasedonresearchfocusedonbiophysicalaspectsofshadeon coffeeplantations.TheSMBCrequiresthatproducersmeettherequirementsfororganiccertification first,andthenmeetadditionalcriteriaincludingcanopyheight,foliagecover(40%shadecoverage), diversityofwoodyspecies,totalfloristicdiversity,structuraldiversity,leaflitter,herbsandforbsground cover,livingfences,vegetativebufferzonesaroundwaterwaysandvisualcharacteristics.TheBird Friendlycertificationdoesnotaddresslaborconditions.AsRobertRicewiththeSMBCstatedinregardsto theBirdFriendlycertification,Itsasealthatjusthasalotofscientificrigorbehindit.Thebiggest challengetoBirdFriendlycertificationisthecostofobtainingorganiccertification,whichcanrequire yearsofeffortandexpense.In2008,approximately2,916metrictonnesofBirdFriendlycoffeewassold.

CommonCodefortheCoffeeCommunity(4C) TheCommonCodefortheCoffeeCommunity,alsoknownas4C,wasestablishedbytheGermanCoffee Association(DKV)andtheDeutscheGesellschaftfrTechnischeZusammenarbeit(GTZ)withthegoalof facilitatingmoresustainablecoffeeproduction.Buildingonbestagriculturalandmanagementpractices, the4Ccodeofconductintendstoeliminatethemostunacceptablepracticeswhileencouragingongoing improvement.4Cdistinguishesitselffromorganic,FairTrade,RainforestAllianceandUtzcertificationsby relyingonaninternalmonitoringsystemincorporatedwithintheinitiativescorporatebusiness model,ratherthancertificationofstandardscompliancebythirdparties.4Chasnosetpricepremiums, allowingfreenegotiationbetween4Cmemberswithpricereflectingcoffeequalityandsustainable productionpracticesandthestandardsitsetsaretheabsoluteminimuminallecological,socialand economicaspects.ByDecember2008,approximately116,400metrictonnesof4Ccertifiedcoffeewas purchasedby4Cmembers. UtzCertified UtzCertified,originallyknownasUtzKapehwhichmeans"goodcoffee"intheMayanlanguage,was foundedin1997byGuatemalancoffeeproducersandtheDutchcoffeeroasterAholdCoffeeCompany, andisoneofthefastestgrowingcertificationprogramsintheworld.UtzCertifiedaimstoimplementa worldwidestandardforsociallyandenvironmentallyappropriatecoffeegrowingpractices,andefficient farmmanagement.Theprogramisfocusedonthemainstreammarket,andisopentoallgrowers, traders,roastersandretailersacrosstheentiresupplychain.UtzCertifiedhasauniquetrackandtrace system,showingthebuyersofUtzcertifiedcoffeeexactlywheretheircoffeecomesfrom.AsIllanaBurk, BusinessDevelopmentManagerwithUtzexplained,aroastercanprintacodeonabag,wherebythe customersenterthecodeinandimmediatelytracktheircoffeeallthewaybacktotheoriginatingfarm. Thefarmsstorycanbetoldandtransparencyensured.ThepriceforUtzcertifiedcoffeeisdeterminedin anegotiationprocessbetweenbuyerandseller,whichthecertificationbodydoesnotinterferewith.Utz certifiedhasbeencriticizedoverweakenvironmentalandsocialstandards,thelackofprefinancing standards,andthelackofminimumguaranteedprices.Leivasays,"UtzwasdevelopedforEuropean grocerychains.Thatsthesealthattheydevelopedfortheirownmarketingpurposebasically.Although Utzcertificationisnotrecognizedworldwideithasslowlybeengainingrecognitioninmorecountries, particularlyinJapanwherecertificationnotonlyyieldsapremium,butalsoisnecessarytomeetthe exactingstandardsoftheJapaneseconsumers.In2008,77,478metrictonnesofUtzCertifiedcoffeewas sold. DirectTradeandFarmFriendlyDirect(FFD) Directtradeisageneraltermforcoffeesthatareimporteddirectlyfromgrowers,ratherthanpurchased throughbrokersatauction.Throughadirecttraderelationship,individualtermsandpricescanbe negotiatedandgrowerstypicallyreceiveahigherpricesincetherearenomiddlementakingashareofthe price.StellandhisteamfirmlybelievedintheFFDprogramthatstartedin2001attheLaHildaEstatein CostaRica.TheprogramevolvedtoincludedirecttradearrangementswithfarmersinTanzania,El Salvador,CostaRica,Sumatra(Indonesia),India,PapuaNewGuinea,GuatemalaandEthiopia.Directtrade withfarmersindevelopingcountriesisnothingnew,butStellwantedtocreateaprogramthatembodied hiscommitmenttocommunityandsustainability.TheFFDprogramwasbasedonpayingabovemarket pricesforpremiumcoffee,thenpayinganadditionalpremiumtofinanceprojectsthathelpimprovethe livesoffarmersandtheircommunities(Appendix12).Otherdirecttrademodelspaypremiumsabove FairTradepricetorewardquality,buttheymaynothavespecificsonhowthatmoneyisspentbythe growers.IncreatingFFD,Stellstronglybelievedthatdirecttradenotonlyresultedinhigherqualitycoffee forcustomers,butalsoensuredlongtermmutuallybeneficialbusinessrelationshipsbetweenPRCand

theirfarmers,aswellasbetweenthefarmersandtheircommunityandnaturalenvironment.Asthe qualityofcoffeeimprovedunderdirecttrade,certainfarmerswereapproachedbyotherbuyers,often offeringhigherprices.StellandPRCnevertiedgrowersintoexclusivesourcingcontracts,believingthata varietyofbuyersbenefitedthegrowersinthelongterm.Farmershadthechoiceofsellingtothehighest bidders,buttendedtostayloyaltoPRCtrustingthattheyweremakingalongtermcommitmentand payingstablepricesoverthelongterm. Stellwouldtypicallysampledifferentcoffeesfromabrokeruntilhefoundonethathadthequalityhe desired.Hewouldthenpatientlyworkonfindingtheoriginalsourceofthatcoffeeandbeginestablishing directtraderelationshipswiththegrower.EachFFDprojectwasthendesignedandimplementedthrough acollaborativeprocessbetweenPRCemployees,farmersandtheircommunitiestoaddresssomeofthe mostpressingneeds.ProjectswereevaluatedbyhowcloselytheyalignedwiththeUnitedNations MillenniumDevelopmentGoals(Appendix13),thepotentialforimprovingfarmerslives,overallcosts andthevisibilityofeachprojectwithitsdirecttraderelationship.Onceaprojectwasundertaken,PRC remainedengagedtoensurethatthefarmersandcommunitieshadaccesstotheassistanceand materialsneededtocompleteeachproject.MostFFDprojectswereshortterminnatureandtypically completedwithinaonetotwoyeartimeframebeforethenextprojectwasdevelopedandimplemented. FFDprojectsincludedbuildingaschool,payingteacherswages,constructingawatertreatmentfacility (Appendix14),installingwaterpumps,implementingasoilandleafanalysisprogram,supportingalocal foundationtofundcommunityneedsandplantingtrees. Therewerechallengestothedirecttrademodel.Ittooktimetoworkthroughcoffeebrokerstotracethe sourceofhighqualitybeansbacktothefarm,beginadialoguewiththosefarmersandthenbegin developingarelationshipthatcouldbecomepartoftheFFDprogram.Farmerswereoftenskepticalof foreigncompanies,andtendedtobemorecomfortabletransactingbusinessthroughlocalchannelsand coops.Stellalsoknewthathisteamwasonlyabletotraveltoeachfarmatmostonceayeartomeetwith farmersandmonitorongoingFFDprojects.CertainprojectsrequiredexpertisethatwasoutsidePRCs corebusiness.Insomecases,PRCcollaboratedwithNGOsonFFDprojects,relyingontheirexperience, yetthisoptionwasnotalwaysavailableorfeasible.StakeholdersbeganaskingStellforspecificsonhow muchPRCinvestedinFFDprojects.Therewerenointernallymandatedpoliciesorformulasfor determininghowmuchmoneywouldbeallocatedtofundFFDprojects.Likewise,PRChadnoformal guidelinesforselectingandstructuringFFDprojectsnoranymetricsdefinedformeasuringthesuccessor effectivenessofFFDprojects.KathleenFinn,acommunicationsandmarketingrepresentativeatPRC, believedthattheFFDprogramshouldremainflexibleandfluid,arguedthattheprogramsupports sustainabilityandinordertobestdoso,theprogramitselfneedstobeorganic.Sometimesafarmer growingcoffeeinadevelopingcountrylikeGuatemalaorinanotherpartoftheworldmaybedoingvery wellinrelationtotherestoftheircommunitythatsupportsthem,soasaresultsometimesthefunds fromproceedsgoingtotheFFDprogramarebestspentwiththecommunityversusthefarmer.Atother timesthefarmerneedssupporttomeetqualitystandardsortohelpbecomemoreenvironmentally and/orsociallysustainable.Asaresulttheprogramneedstobeorganic,flexible,transparent,andmay needtochangefromcroptocroporfarmertofarmerinordertomeetlocalneedsandbeabletobring valuetoPRCandourclients. PortlandRoastingCoffeeCompany SupplyChain ThroughtheFFDprogram,PRCworkedtominimizethenumberofmiddlemeninthecoffeesupplychain. Thebrokerandimporterstillplayedarolebyassistingwiththenecessaryfunctionsoftransporting,

processing,storing,financingorimporting.However,PRCnegotiatedaseparatecontractwiththese intermediaries,assuringthatthepriceofferedtothegrowerswasnotimpacted.Thecontainerscarrying FFDCentralAmericancoffeeswereshippedintoOaklandorLongBeach(California),FFDcoffeefrom PapuaNewGuineawasshippedintothePortofTacoma(Washington),andFFDTanzaniancoffeeswere shippeddirectlyintothePortofPortland(Oregon).PRCcoffeethatwasnotpartoftheFFDprogramwas typicallypurchasedonthespotmarketthroughbrokerswhoimportcoffeeintovariousportsintheUS andselltoroastersthroughouttheUS.Sincecoffeecropsripenatdifferenttimesthroughouttheyear, roastersmustsourcecoffeefromdifferentgrowingregionsthroughouttheyeartosecureasufficient quantityoffreshbeanstomeetannualdemand. PRCworkswithfarmerstoensuretheircoffeeisfarmedfollowingthebestpossiblepractices,andthen takesontheresponsibilityoftryingtomaintainthishighqualitycoffeeonitslongvoyagetoPortlandto beroasted.Storageandshippingconditionscanmakeabigdifferenceintheoverallqualityofacupof coffee.Coffeemayleavetheprocessingmillat12%moisture,butifthecoffeeisn'tshippedrightaway, problemsmayresult.Humidityisacriticalvariable,andifcoffeeabsorbstoomuchmoisture,particularly fromexposuretohumidenvironmentswhenstoredforlongperiodsoftime,itmaytakeonamoldy overtoneinthecup.Thetemperatureofcoffeeduringshippingcanalsohaveanimpactonthequalityof greencoffee,sincequickchangesintemperaturecausecondensationandfermentationofthebeans. Goodcirculationisneededtokeephumidityandtemperaturelevelsconstant.PRCmightreceive Guatemalancoffeefromthefarmtotheloadingdockinaslittleasthreeweeks,whilecontainersfrom othersourcinglocationsmighttakeupwardsofthreetofourmonthstoarrive. UponarrivalatPRCsfacility,unroastedgreencoffeewasstoredinaclimatecontrolledwarehouse environment.Samplesweretakenfromeachlotandinspectedfordefectstoensurequality.Irregularities inqualitycanbeattributedtothefarm,theprocessingorshippingdependingonthenatureofthedefects found.Havingsomedefectsinalotisquitecommonandonlybecomesaconcernifabnormallyhigh.Such defectivebeansaresetasidetohelpthePRCstafflearnhowtoinspectcoffeelotsforquality.Although greencoffeecanlastsignificantlylongerthanroastedcoffee,forthesamereasonsencounteredduring shipping,itisimportantforsourcedgreencoffeetoberoastedinareasonableamountoftime.Coffeeis storedinburlapbagsmarkedwiththenecessaryinformationaboutthecoffeetokeepcoffeesfrombeing confused.Organiccoffeesarestrictlykeptseparatefromothercoffeestoconformtocertification standards. Thecoffeeroastingprocessheatsgreenbeanstoaspecifiedtemperatureforaspecifiedlengthoftime. Roastingprofilesforeachcoffee,designatingtargettemperaturesthroughoutthedifferenttimeintervals intheroastingprocess,arecarefullyfollowedtohighlightdifferentflavorsinthecoffeeandensure consistencyinthefinalproduct.PRCsroastingequipmentiscomputermonitoredsothatroastprofiles canbehighlyconsistentwhilemaintainingtheuniquenessofeachroast.However,evenwithallthe metricsthecomputerrecords,skilledroasterswoulddiligentlyoverseeeverystageoftheroasting process.Assubtlechangessuchasfluctuationsintheambienttemperatureorhumiditycanaffectthe finalproduct,everyroastisslightlydifferent.Mostmachinesmaintainatemperatureofabout550 degreesFahrenheit.Thebeansarekeptmovingthroughouttheentireprocesstokeepthemfromburning astheyslowlyroast.Whenthebeansreachaninternaltemperatureofabout400degrees,theyturn brown,sugarsstarttocaramelizeandtheoilslockedinsidethebeansbegintoemerge.Thehotroasted coffeebeansarethenquicklyspilledoutontoatraywherecoolingfansreturnthecoffeetoroom temperature.

Havingbeenreturnedtoastabletemperature,roastedcoffeeisthenreadyforbagginganddistribution (Appendix15).AtPRC,wholebeancoffeeforgrocerydistributionwaspackagedinbulktofillstore containerswherecustomersfilltheirownbags.Wholebeancoffeeforsaleinsmallbagswassimply packagedandstoredfordistribution.Groundcoffeewascrushedtoaspecificsizeincrementdepending oncustomerpreferencesandtheirmethodofmakingcoffee,thenbaggedandstored.Baggedcoffeesare containedinasealedpackagewithavalvetoreleasegassesproducedbythecoffeeasitages.The packagingkeepsoutairandslowstheprocesswhereincoffeefermentsorgoesstale,butasgassesarelet off,thecoffeealsoslowlylosesitsflavor. MarketingandProductDifferentiation PRCusedanumberofdifferentchannelstomarkettheircoffeeandservices.Theytakeleadingrolesina widerangeofindustrytradeshows,conferencesandsamplingevents.ThroughthesechannelsPRC showcasedtheirwiderangeofcoffeeblendsandsupportingproductsandservices.PRCalsoworkedwith retailersoncooperativemarketingeffortsincludingcustomizedlabeling,storyboards,decorative packagingandcolorfulphotographythathighlightedtheFFDprogram(Appendix16).PRCalsodelivered theirmessagetoconsumersthroughtheirwebsitecontaininginformationoncompanyhistory,products, blogs,theirmediaoutreach,theFFEDprogramandPRC'sothersustainableinitiatives.MarieFranklin,the NationalSalesandMarketingDirector,believedthatbeyondtheoverallfocusonquality,customer serviceandafocusonsustainabilityweretwoattributesthathelpedtodifferentiatePRCfromtheir competition. BecausePRCisasmallercompanyrelativetolargescaleroasters,PRCmadeeveryefforttoprovide superiorcustomerservice.PRCofferedawiderangeoftrainingprogramsforthecafstaffthatprepare coffeebeverages,orbaristas,alongwithtechnicalsupportservicesforclientsusingPRCespressoanddrip coffeeequipment.PRCalsoofferedarangeofonlinetrainingvideosavailabletoanyoneinterestedinthe artofcoffeemaking.AccordingtoFranklin,"Stayingclosetoyourclientsisthebestwaytomakesurethat youaremeetingtheirneeds.InthePRCtastingroom,PRCeducatedclientsontheflavorspectrumof differentcoffeevarietalsandprovidedhandsonexperienceandtrainingwithequipmentavailablefor purchase.ThisensuredthatPRCclientswereexperiencedwiththetechnologyusedtomakecoffeeand equippedtodeliverthehighestqualityproducttotheendconsumer.Thetrainingsessionsalsoprovided PRCwithavaluableopportunitytobuildpersonalrelationshipswithcafowners.NickDoughty,general managerforElephantsDelicatesseninNWPortland,emphasizedthathisbusinesswasaboutgoodcoffee andgoodpeople.BydoingbusinesswithPRC,hewasabletobypassthehypeofsomebiggername competitors,gethighqualitycoffeeandthetrainingandequipmentthathisbusinessneeded,allwhile workingwithpeopleheenjoys. Oneofthemostimportantdifferentiators,accordingtoFranklin,wasthecompanyfocusonsocialand environmentalresponsibility.PRCwasthefirstcompanytocreateasustainabilitybaseddirecttrade program,eventhoughcompetitorshaveintroduceddirecttradeprograms.PaulTostberg,ownerof CoffeeCultureinCorvallis,Oregon,statedthatsustainability,qualityandproximitywereatthetopofhis listofreasonshechosetoworkwithPRC.Paulbelievedthatbeingalocalcompanyworkingcloselywith customers,providingthoroughcustomersupportservicesandcreatingspecialblendsthathiscustomers werelookingfor,wereallqualitiesthatsetPRCapartfromothercoffeeroasters.Tellingthestoryofthe FFDprogram,raisingcustomerawarenessandbeingrecognizedforsustainablepracticesthatexceedthe standardsofconventionalcertificationswasintegraltoPRCsmarketingstrategy. DistributionChannels

CoffeeHouses PRCtargetedsmallspecialtycoffeehousesinhopesthattheywouldservePRCcoffeetotheincreasingly sophisticatedpalettesoftheirclients,whoaredemandinghighqualitycoffee.However,thesecoffee houseswerenotaneasysell.Manyofthempurchasedcoffeeinlowvolumesyethadhighexpectations. Notallcoffeehousecustomerschoosesuppliersforthesamereasons.QualitywasimportanttoDiana Benting,purchasingmanagerforPortlandCommunityCollege,whoperformedablindtastetesteveryfive yearstodeterminewhomtheywillpurchasefrom.Althoughsheappreciatedlocalbusinessespromoting sustainablepractices,ifanewcoffeedidntpasshertastetest,itwouldnotbeconsidered.Although Bentinghadherowncriteriaforselectingcompaniestopurchasecoffeefrom,herstudentshadawhole separatesetofmotives.AccordingtoBenting,manycollegestudentsdon'tcaresomuchaboutthebrand orcompanypolicy,insteaditisallaboutlocation.Timeisalwaysapremium,especiallyoncampus.Ifthe campuscoffeehouseisthemostconvenientlylocatedplacetopurchaseacupofcoffeebetweenclasses, thenthatiswherestudentswillgo,regardlessofbrand. Customerservicewasalsoimportanttosmallcoffeehouses.RicofromtheCoffeeLoungeinPortland, purchasedcoffeefromPRCforfouryearsbeforehedecidedtoswitchtoanotherroaster.Aswithany smallbusiness,anentrepreneurstimeismoney,andthereisneverenough.Theadditionalsupportin customerserviceofferedbythenewroaster,ataminorcostdifferenceandwithsimilarquality,was enoughtolurehimawayfromPRC'sbusiness.ThatisnottosayallofPRC'sclientsfeelthesame.Mostof PRC'sclientsopttodobusinesswiththembecauseoftheadditionalservicestheyget.Doughtystated thatoneofhisdrivingmotivesforselectingPRCwastheadditionaltraining,salesandtechnicalsupport thecompanyofferedhim.Asasmallcompany,itwaseasierforPRCtomaintainapersonaltouchwith theirclients,reactingquicklytoandanticipatingcustomerneeds.Cooperativemarketing,onsitetraining, customlabelingandpersonalattentionareallvaluableservicesforsmallbusinesses.Theseservicesdo notcomecheaphowever.Oneofthedisadvantagestobeingasmallerroastingcompanyishavingless capitaltoworkwith.Everyminutespentwithanexistingcustomer,nomatterhowimportant,isaminute thatcouldhavebeenspentlookingfornewcustomersandbuildingnewrelationships. Hotels&Restaurants Manyhighendhotelsprovidedspecialtycoffeeinroomsandrestaurantsasawaytoenhancetheir visitorsexperiences.PRCtargetsboutiquehotelsacrossthecountry.Theseboutiquehotelsbelievethat thequalityofthecoffeetheyoffertheirguestsisjustonereflectionofahighqualityexperience.Given theplethoraofspecialtyroastersnowinthebusiness,andthedispersednatureofthesehotels,itisnot aneasymarkettopenetrate.Franklintargetsseverallargerboutiquechainstoreducethecostof cultivatingclients,lowercostsofgoodssold,andincreasethevolumeofsalesperclient,whilealso seekingoneofakindbedandbreakfastestablishments. PortlandRoastingrecentlywontheaccountforsupplyingcoffeetotheBurgervillefastfoodrestaurant chainacrosstheNW.ThisisaveryhighprofileandhighvolumeaccountforPRC.PRCsuppliescoffeetoa numberofotherrestaurantsintheNW,andareactivelypursuingaccountswithboutiquerestaurants committedtosupplyingtheircustomerswithlocal,sustainable,and/orhighqualityproducts,aswellas highervolumeaccountswithchainrestaurantswhoarealsobecomingmoreinterestedinproviding quality,sustainableproducedcoffee. Institutions Fromthebeginning,localinstitutionsthroughoutOregonwereastrategicallyimportantmarketsegment forPRC.ThecompanycreatedkeyrelationshipswithseveralofthelargestuniversitiesinOregonincluding

PortlandStateUniversity,PortlandCommunityCollegeandOregonStateUniversity.Theseclients purchasedlargevolumesofcoffeefromPRC,butalsoputtheirproductsinfrontofahighprioritymarket youngandconscientiousconsumers.Inaddition,PRCalsosoldcoffeeandservicestochurches,large fooddistributorssuchasFoodServicesofAmerica,casinosandmedicalcenterssuchasOregonHealth andScienceUniversity.Theseclientsweregenerallyconsistent,reliableandadvertisedthePRCbrandin highlyvisiblemarkets,providingexposureandmarketingvaluebeyondthedirectpurchasingofcoffee andotherproducts. Grocers PRCalsosoldahighvolumeofcoffeetosupermarketsandgrocerystores.PRChadcreatedapilot marketingandsalescampaigninpartnershipwithFredMeyer(adivisionofKroger),oneofOregon's largestsupermarketchains.ThisgainedPRCanunprecedentedamountoffloorspacetocreateaunique shoppingexperienceforthecoffeeconsumer(Appendix17)andprovideconsumereducationaboutPRC's coffeesandtheFFDprogram.PRChopedthatFredMeyerwouldexpandthisprogram,alongwithPRC's shelfspace,intohundredsofstoresacrossthePacificNorthwest.PRCalsoworkedwithothersmaller, gourmetfoodmarketsandgrocersincludingZupansMarketandNewSeasons,bothofwhichhadgreat potentialforexpansion. Competitors WholesaleRoasters AlthoughPRChadaninnovativebusinessmodel,theywerecertainlynottheonlyspecialtycoffee companytopurchasedirectlyfromfarmers,roastbeanstoexactingstandardsandselltoavarietyof retailers.Wholesaleroastersrepresentedthelargestsegmentofspecialtycoffeeprovidersinthe industry.UnlikePRC,manywholesaleroastersalsoopenedretailstorefrontswhichhelpedtointroduce thepublictotheircoffee,buildstrongbrandrecognitionandprovideanotherwiseunavailable opportunitytohavedirectinteractionwiththeirconsumers.WithinPortland,PRCwascompetingagainst numerousotherroastingcompaniesincludingStumptownCoffeeRoasters,whichalsosourcedsingle origincoffeesfromfarmersaroundtheglobeandroastedthebeanslocally. RetailerRoasters Therehadbeenarecentriseinthenumberofsmallspecialtyandboutiquecoffeeroasters.Thesemicro roasterswereoftenpurchasingdirectcoffeeeitherfromfarmersorcoffeeimportersandthencreating specialtyroaststomeettheselectiveanddemandingstandardsoftheircustomers.MikeFergusonfrom theSCAAnoted,"Thisisonewayforretailerstodifferentiatethemselvesfromthecompetition,byhaving awidervarietyoffreshlyroastedcoffee."TheSCAAestimatesthattherewerewellover2,000ofthese smallspecialtyretailroasters,andtheyestimatedthattheirnumberswouldcontinuetogrowas consumersbecamemoreeducatedonthewiderangeofcontributingfactorsthatallcometogetherto makeagreatcupofcoffee.Withanewgenerationofcoffeelovingstudentsandyoungprofessionals joiningtheagingbabyboomers,themarketwasstrongenoughtosupportawiderangeofsmallniche retailers,aswellasfranchises.Someofthemoresuccessfulretailerroastershadevenbeenableto branchouttheiroperationslocally,regionallyandevennationally. FranchisedRoasters Someofthebiggestplayersinthespecialtycoffeeindustryhavebeensuccessfulatnotonlydirectly sourcingtheircoffee,butalsotappingintoboththeretailandwholesalemarketsacrossthecountry. Starbuckshadbeenverysuccessfulinpenetratingtheinstitutionalandwholesalemarketsbycreating relationshipswithhotelchains,airlinesandotherlargefranchiseslikeBarnes&Noble.Thecombination

ofthesemarketssawStarbuckscapturemorethan40%ofthespecialtycoffeemarketvi.Starbuckswas notaloneintryingtocontrolthisfranchisedmarketspace,andanycompetitortoStarbuckswasa competitortoPRC.Althoughnotaroaster,McDonaldshadrecentlyaddedspecialtycoffeetotheirmenu, andwiththousandsoflocationsacrossthecountry,massiveeconomiesofscaleandareputationfor affordableconvenience,McDonaldsbecameathreattothespecialtycoffeeindustry. VolumeRoasters Asmallnumberofverylargecorporationsdominatedthecoffeeroastingindustryfordecades,creating someofthemostrecognizedbrandsintheUS.TheselargescaleroastersincludeJ.M.SmuckerCompany (FolgersandMillstone),Nestl(NescafeandTastersChoice),andKraftFoods(Yuban,MaxwellHouse, Brim,GeneralFoodsInternationalCoffee,Gevalia,Kenco,MaximandSanka).Notnearlyasdemandingin thequalityofthecoffeetheysource,theselargeroastersoftensourcedtheircoffeefromverylarge producersinMexico,Brazil,Columbiaandothercountries.Manyofthesecompaniesalsopurchasedthe lowerqualityportionsofacropfromhighendproducers.Salesofconventionalgroundandwholebean coffeehavebeenconcentratedamongsttheseveryfewbrands.Folgerscontrolled38%andMaxwell Housecontrolled33%ofgroundcoffeesalesin2007vii.Historically,thesevolumeproducershaveheldthe largestshareofthemarket,buttheirgrowthhadbeenslowingasconsumersmovedtowardhigher quality.Yetthesevolumeproducersexertedhugeinfluenceonthecoffeeindustryduetotheir tremendouspurchasingpower,andwereslowlyimplementingmoresustainablepractices. Substitutions Themostobvioussubstituteforcoffeeistea.AccordingtotheTeaAssociationoftheUnitedStates,in 2007thewholesaleUSindustryvalueforteawas$6.85billion.Inmanypartsoftheworldteaisnotonly hasalargermarketbutalsohasmaintainedstrongerculturalrootsmakingitverydifficulttosupplant. Despitethisfactspecialtycoffeebegantomakesomeinroadsintowellknownteadrinkingcountries includingEngland,China,andJapan.Therehasalsobeenarapidlygrowingmarketinhighlycaffeinated sodasandenergydrinks,oftenreferredtoasfunctionalbeverages.From200407,salesofenergydrinks morethandoubledfrom$1.1billionto$2.5billionviii. PRC'sCommitmenttoSustainability SustainablevaluesplayedapartineverydecisionatPRCwithregardtoitscustomers,farmers,products andemployeesevengoingbeyondtheFFDprogram.Beginningin2006,aninhouseenvironmentalteam wastaskedwithfindingenvironmentallyfriendlyalternativesforallofitsoperations.Asaresult,PRC encouragedcomposting,recycling,usingpostconsumerofficepaperandthecompanywideuseofearth friendlycleaningproducts.EmployeeswereencouragedtoridebikestoworkandPRChadeven contractedwithBLine,asustainableurbandeliveryservice,toofferbicycledeliveriesofcoffeebeansand suppliestoPortlandclients(Appendix18).OneofPRC'stwodeliveryvansranonbiodieselandthe companyhaddeclaredthatallnewvehiclepurchaseswouldalsobepoweredbybiodiesel.Thecompany beganworkingwithTreesfortheFuturewiththeaimofbecomingacarbonneutralcompanythroughthe purchaseandplantingof16,900trees. ButStellwantedtohaveanevenlargerimpactontheenvironment,andin2007begandistributing Ecotainertogocups.Thesecupshadaninsideliningofbioplasticmadefromcorn,andanouterlayerof paperharvestedfromtreesmanagedinaccordancewithSustainableForestryInitiativeguidelinesix.Allof thebulkcoffeethecompanysoldtogroceriesandalloftheconsumerbulkbagswere100%compostable. Undertheproperconditions,thesecupsandbagscanbreakdownintowater,carbondioxideandorganic matter.Finally,in2009,PRCsponsoredaWalkforWater,whichraisedfundstobenefitWaterforAll,a

nonprofitorganizationdedicatedtobringingcleanwatertofamiliesinsubSaharanAfrica.Theinaugural eventraised$28,000tofundtwowellsinYirgacheffe,Ethiopia,acoffeegrowingregioninEasternAfrica. Sucheffortsledtothecompanyreceivingthe2005SCAASustainabilityAwardandrecognitionfromthe CityofPortlandwiththe20072009RecycleWorksAward.PRCsignedtheGlobalCompactin2005and sincethenconsistentlypromotedtheMillenniumDevelopmentGoalsoncups,productpackagingandthe companywebsite. TheFutureofFarmFriendlyDirect AsthepilotannouncedthefinalapproachintoBujumbura,Stellglancedoutofthewindowanddownat thecityontheshoreofLakeTanganyika.Hewasconfidentthatthenextdirecttraderelationshipwould beestablishedinBurundi,andhadnodoubtthattheFFDprogramcouldpositivelyimpactthequalityof lifeforfarmersandtheirsurroundingcommunity.However,hewaslessconfidentthattheFFDprogram initscurrentformwouldprovidePRCwiththenecessarycompetitiveedgeneededtosecureregional accountswithlargeretailersintheUS.AlthoughStellbelievedthattheFFDprogramwasuniquetothe coffeeindustryandsuperiortomainstreamcertificationprogramsinmanyways,consumerawarenessof FFDwasrelativelylowcomparedwithFairTrade,Organic,RainforestAllianceandBirdFriendlylabels.FFD lackedthecredibilitythatcertificationprovidedastherewerenoestablishedcriteriaforFFDprojectsand theimpactswerenotverifiedbyanindependentthirdparty.Stellhadconsideredbuildingmorestructure intotheFFDprogrambyimplementingwrittenguidelinesandcreatingaproprietaryFFDlabel.IfPRC decidedtogothisdirection,whatcriteriashouldbeusedtoverifycompliance,measureresultsand ensurecredibility?ShouldPRCalsoinvesttheresourcesnecessarytoimplementsomeformof verification,orrelyonmessagingtoreassureconsumersofthepositiveimpactsofFFDprogramson sustainability?Fromamarketingstandpoint,inwhatotherwayscouldtheFFDprogrambeleveragedto buildthePRCbrandandcompelqualityconsciouscoffeeconsumerstoseekoutandpurchaseFFDcoffees versusotherdirecttradeoptions?Stellunbuckledandpreparedtoexitthesmallplane.Hehadsome toughdecisionstomakewhenhereturnedtoPortlandalthoughanyrevisionstotheFFDprogramwould havetowait.TheimmediatepriorityforStellandhisteamwastowintheFredMeyeraccount.

 InternationalCoffeeAssociation,Totalproductionofexportingcountries,Cropyears2003/04to2008/09, http://www.ico.org/prices/po.htm
ii

Manycoffeeproducersaresmall,familyownedfarmscoveringtwohectares orless,whilelargercoffeeestatesmay beupwardsofseveralthousandhectares. Pendergrast,Mark.UncommonGrounds:TheHistoryofCoffee&HowitTransformedOurWorld.1999.Mark Pendergrast.BasicBooks.NewYork,NY:BasicBooks,1999.Print. Mintelreports. http://www.msnbc.msn.com/id/8841941/ Wikinvest,2009http://www.wikinvest.com/stock/Starbucks_%28SBUX%29 USDA MintelsEnergyDrinksU.S.,July2008 http://www.portlandroasting.com/sustainability/ecotainer

iii

iv v

vi

vii

viii ix

Appendix1PortlandRoastingCompanyProductPackaging

Appendix2PortlandRoastingCompanySourcing

Appendix3PortlandRoastingCompanySourcingData
PortlandRoastingCoffeeImportsinPoundsperYear FarmFriendlyDirectCoffee CostaRicaFFD EthiopianFFD GuatemalaFFD NewGuineaMadanEstate FFD SumatraOrganicFFD SwissWaterProcessedFFD NonFarmFriendlyDirect Coffee BolivianOrganic Brazil BrazilTopSky Colombian ColombianDecaf CostaRicaOrganic CostaRicaDecaf ElSalvador CupofExcellenceEl Salvador ElSalvadorOrganic EthiopianOrganic GuatemalaDecaf GuatemalaOrganic IndiaMonsoonedMalabar IndiaArabica IndiaRobusta IndonesianRobusta JamaicaBlueMountain Kauii KenyanAA KenyanPB Kona MexicanChiapas MexicanOrganic NewGuineaAmuliba NewGuineaKinjibi NewGuineaRedMtn NewGuineaOrganic NewGuineaPeaberry PeruSelvanica PeruInkaico PeruOrganic RedSea Sumatra SumatraDecaf SwissWaterProcessed Colombian SwissWaterProcessed EspressoDecaf SwissWaterProcessed KomodoOrganic SwissWaterProcessed MexicanOrganic SwissWaterProcessed PeruOrganic SwissWaterProcessed Sumatra SwissWaterProcessed Guatemala SwissWaterProcessed Ethiopian TimorOrganic UgandanAA CascadiaBlendSwissWater Processed CelebesToraja/Sulawesi Tanzanian TanzanianPB HondurasOrganic CupofExcellence Honduras SalvadorOrganic NicaraguaOrganic CupofExcellence Nicaragua Rwanda TotalGreenBeans Processed(lbs) %oftotalFFD %oftotalorganic 2003 36836 28859 61173 0 8437 0 2003 39 1902 0 8988 19831 281 46 1854 0 0 732 0 6805 46 0 0 4419 54 237 297 0 77 8935 431 8197 16620 0 3980 0 1642 0 1601 344 68638 12067 486 1280 264 1764 1905 1683 0 0 493 25230 0 0 0 0 0 0 0 0 0 0 338,476 40% 8% 2004 39716 35776 72753 0 15399 0 2004 836 4039 0 8527 20320 5146 0 2410 0 0 1956 0 9233 656 0 0 697 86 497 504 0 122 9948 1179 65 27,275 0 11478 0 8790 0 4314 491 76289 15780 1875 1470 132 3512 1053 5335 0 0 2074 30262 240 126 0 0 0 0 0 0 0 0 422,365 39% 13% 2005 49389 42309 88746 0 24524 0 2005 0 8127 0 10574 19453 7073 0 5186 0 0 2282 0 12660 29 0 0 3774 105 258 616 0 163 1091 979 0 50348 0 12729 0 2411 0 5453 0 53370 18202 1430 2478 0 5512 0 3728 0 0 228 28139 948 988 4983 0 195 0 1560 0 0 0 472,045 43% 15% 2006 58361 57990 109023 24800 25452 16,236 2006 0 10061 411 15185 16026 5333 0 3011 0 0 5310 0 4862 23 0 0 1424 47 179 317 0 111 0 132 0 37714 8268 13108 0 5599 462 12982 0 59021 15159 1248 2105 0 3168 0 2376 0 702 0 18109 1386 175 33831 0 0 0 66 15814 0 0 587,593 50% 15% 2007 79053 74,649 145,795 102,051 24777 60,125 2007 0 15128 1478 17145 2905 5798 0 2263 0 0 4592 0 0 0 2778 0 0 15 0 0 0 385 0 0 0 185 0 9960 0 0 241 16,061 0 66,325 1607 462 0 0 0 0 1703 1010 264 0 38062 0 1307 0 0 0 0 0 21,103 0 9867 709,101 69% 12% 2008 87,207 31,407 171,353 153,499 31,963 74982 2008 0 21,185 621 18,711 2509 7893 0 1625 22 989 3106 111 0 0 3752 3154 0 21 0 33 18 396 0 0 0 0 0 11966 1984 0 0 19566 0 85,566 2035 0 0 0 0 0 1,868 1870 0 132 4950 0 1230 34,063 1,352 152 13 0 26,619 17 18,500 828,448 66% 12%

Appendix4PortlandRoastingCompanyOrganization

Appendix5PortlandRoastingCompanyRevenues

*sales figures as of October 27, 2009

Year

Sales(USD)

2004

$3,160,070.04

2005

$3,842,704.08

2006

$4,548,318.39

2007

$4,910,049.78

2008

$5,368,632.85

2009
*sales figures as of October 27, 2009

$4,333,022.32*

Appendix6CoffeeCherryCutout

Appendix7CoffeeCPriceHistory

Appendix8GrowthofStarbucksStores

Year 1995 1996 1997 1998 TotalUSRetailStores 676 1004 1364 1755 CompanyOperated 627 929 1270 1622 Licensed 49 75 94 133 TotalInternationalRetailStores 1 11 48 131 CompanyOperated 1 9 31 66 Licensed 0 2 17 65 TotalStoresOpenatFiscalYearEnd 677 1015 1412 1886

1999 2217 2038 179 281 97 184 2498

2000 2976 2446 530 525 173 352 3501

2001 3780 2971 809 929 295 634 4709

2002 4574 3496 1078 1312 384 928 5886

2003 5201 3779 1422 2024 767 1257 7255

2004 2005 2006 2007 2008 6132 7302 8896 10684 11567 4293 4867 5278 6793 7238 1839 2435 3168 3891 4329 2437 2939 3544 4327 5113 922 1133 1374 1712 1979 1515 1806 2170 2615 3134 8569 10241 12440 15011 16680

Appendix9CoffeeMarketHistoricalData(SCAAMarketData)

Appendix10CompetitiveAdvertisingfromMcDonaldsandDunkinDonuts

Appendix11CoffeeCertificationComparisons
Initiative Mission FairTrade Ensureequitabletrading arrangementsfor disadvantaged smallholderswhoare organizedinto cooperatives. Organic Createaverified sustainable agriculturesystem thatproducesfood inharmonywith nature,supports biodiversityand enhancessoil health. UtzCertification Settheworld standardfor sociallyand environmentally responsible coffee productionand sourcing. Rainforest Alliance Integrate productive agriculture, biodiversity conservationand human development. BirdFriendly Conductresearchand educationaroundissues ofneotropical migratorybird populations,promoting certifiedshadecoffeeas aviablesupplemental habitatforbirdsand otherorganisms. 4C Toachieveglobal leadershipasthe baselineinitiative thatenhances economic,social andenvironmental production, processingand tradingconditions toallwhomakea livinginthecoffee sector. 20071stcert. Begunin2003by GTZandDKA. Certifiedfirstfarms in2007.

Year Established History& Development

1970s BeganasMax HavelaarinThe Netherlandsinthe 1970s.Nowthereare severalnationalFair Tradechapters organizedbythe FairtradeLabeling Organization(FLO)in Germany.TransFairis theUSchapter. Allmarkets Economicand environmental sustainabilityfor farmersandtheir communities.Minimum priceandsocial premiumtocovercosts ofproductionand investmentsinthe community.Organic premiumfororganic coffees.Smallproducer organizations empowerment. Social,economic, environmental, democratic organizationof cooperatives. Baselineandprogress criteria.Continuous improvementrequired throughprogress requirements.Applies todemocratically organizedcooperatives formedbysmallscale farmers.

1973 Begunaround1973 asafarming movementand certificationsystem. Developedinto internationally recognizedsystem withproduction throughoutthe worldandannual salesabove$20 billion. Allmarkets Organicfarming andprocessing practices.

1997,20011st cert. Begunin1997as initiativefrom industryand producersin Guatemala, becamean independent NGOin2000. Firstcertified farmsin2001.

1992,19961st cert. Begunin1992by Rainforest Allianceanda coalitionofLatin AmericanNGOs, theSustainable Agriculture Network(SAN). Firstcoffeefarm certificationin 1996. Allmarkets Sustainability; economic,ethics andenvironment.

1997 Foundedin1997with criteriabasedon scientificfieldwork. Operatedoutofthe SMBCofficeinitially,it currentlyinvolves10 organiccertification agenciesastheeventual managersofthe program.

MarketFocus Scopeof Program

Allmarkets Sustainability; economics,ethics and environment. Workersafety.

Allmarkets Certificationaimedat theproductionofthe coffeeagroecosystem.

Mainstream Markets Sustainability; economic,ethics, andenvironment.

CodeElements forCoffee Production

Environmental, farmproduction andprocessing standards. Federalstandard withpracticesfor producersand handlersappliesto allorganicproduct soldintheUS.

Scopeofthe Code

Standard SettingBody

FairtradeLabeling Organizations International

International Federationof OrganicAgricultural Movements

Social, environmental, andefficient farm management. Baselinecriteria withfieldtested indicators. Appliestofarms andcoopsofall sizes.All countries possible. Continuous improvement required. UtzCertified

Social, environmental, workersafetyand efficientfarm. management. Baselineand advancedcriteria withfieldtested indicators. Appliestofarms andcoopsofall sizes.Continuous improvement required.

Biophysicalcriteriaof theshadecomponent, providedthatthefarmis certifiedorganic. Organiccertificationasa conditionforBF certification. Certificationapplicable toestatefarmsand cooperatives.Annual inspectionslinkedto organicinspection.

Socialand environmental.

Baselinecriteria; indicatorsunder development. Appliestofarms andcoopsofall sizes.Everycountry. Continuous improvement expected.

Sustainable Agricultural Network

SmithsonianMigratory BirdCenter

CommonCodefor CoffeeCommunity Association

Monitoring Body

Autonomousnonprofit certifier.

Inspection Frequencyand Accuracy

Annualinspectionsby independentand annuallytrainedFair Tradeinspectors.

Privatecertifiers regulatedbystate andaccreditedby NGO. Annualinspections forcertified entities.USDA accreditation requiredfor certifiersoforganic productsoldinUS.

Privatethird partycertifiers approvedbyUtz Certified. Independent auditors accreditedtoISO 65standard. Annualaudits.

Certificationby member organizations. Atleastannual auditsbyteams ofbiologists, agronomists, sociologistsand otherspecialists trained, authorizedand monitoredbythe Rainforest Alliance. Yes,traceability fromroasterto producer.

Privatecertifiers approvedbyinitiative.

Privatecertifiers approvedby initiative.

Annual,linkedtoorganic inspection. Inspection/certification arranged/providedbya USDAaccreditedorganic certificationagency.

Traceability/ Chainof Custody

Yes,traceabilityfrom roastertoproducer.

Yes,requiredby federalstatuteand historicstandards. Organicproducts traceablefrom retailertoproducer. Mostlysmall farmers,some plantations Standardsthatbar theuseofsynthetic herbicides, fungicides, pesticides,GMOs andchemically treatedplants.

Production Strategy

Smallfarmers

Environmental Standards

Standardsregarding reductionin agrochemicaluse, reductionand compostingofwastes, promotionofsoil fertility,avoidanceof GMOs. Yes.Allpurchasesmust beatorabovethefloor price. Pricefloorof$1.21/lb andsocialpremiumof $0.10.Additional $0.20/lbfororganic coffee.

Yes,traceability fromroasterto producer. Traceableto retailervia internetbased system. Mostly plantations, somesmall farmers Standardsfor protectionof primaryand secondary forests.

Yes,traceabilityfrom roastertoproducer.

Mostly plantations,some smallfarmers Standardsfor ecosystemand wildlife conservation, integratedcrop management,and integrated managementof wastes. Yes.Differential setbythemarket. EstimatedatUS $0.100.20/lb

Mostlysmallfarmers, someplantations

Requiresorganic certification.Additional standardsforshade cover,canopystructure, secondaryplant diversity,streambuffers.

Bansuseof pesticidesunder Stockholm convention,bans destructionof primaryforestor otherprotected areas.

Price Differentialto Farmers PricePremium Associated withCode.

Yes.Differentialset bythemarket. US$0.0150.20/lb

Yes.Differential setbythe market. US$0.010.12/lb

Yes.Differentialsetby themarket. US$0.050.10/lb

FeestoBuyers

Feesto Producers

Licensedroasterspay US$0.05$0.10/lb. Importersmustprovide preharvestfinancing whenrequestedby coop. Costofauditingand reinspectionfee.

Varybycertifier from$700 $3,000/year.

US$0.01/lb

None

Importerspay $100/year.Roasterspay US$0.25/lb

Nonespecified. Pricesreflectthe quality,including thequalityofthe productandthe CommonCode qualityof sustainable productionand processing practices. Annualmembership feedependenton importlevels.

Varybycertifier.

Auditingcosts.

Auditingcosts plusannualfee basedonsizeof farm.

Costofaddeddaysat inspection.

Annualmembership feedependenton productionlevels.

SourceSCAA

 Appendix12FarmFriendlyDirectProjects Year Country Amount(USD) $28,000.00 Internshipandpumpdonated $4,200.00 Teacherssalary $8,000.00 Womensliteracyandbookdrive $16,000.00 PumpsponsorEthiopia $4,200.00 Teacher $2,000.00 Plantedtrees $3,000.00 YieldprojectwithAndres $500.00 Schooluniforms $3,000.00 YieldprojectAndres $2,000.00 AgronomyKit $4,200.00 Teacher $4,200.00 Teacher $1,000.00 Internetsetupandcomputerdonated $500.00 SchoolfortheblindinKarnataka $5,000.00 Schoolbuilt $12,000.00 Builtwatertreatmentforfarm $97,800.00

2009 WorldWaterDayTanzania 2009 CostaRica 2009 PapuaNewGuinea 2008 WorldWaterDay 2008 CostaRica 2008 CarbonNeutralElSalvador 2008 Guatemala 2008 Sumatra(Indonesia) 2007 Guatemala 2007 Tanzania 2007 CostaRica 2006 CostaRica 2005 CostaRica 2005 India 2004 PapuaNewGuinea 2003 Guatemala Total

Appendix13UnitedNationsMillenniumGoals TheMillenniumdevelopmentgoalsareanUNinitiativetoaddresseightinternationaldevelopmentissueswithatotalof21 targetgoalsby2015.Theywereadoptedin2000byUNmemberstatesinrecognitionoftheneedtoassistdevelopingworld nationsintermssocial,environmentalandeconomicissues. Goal1:Eradicateextremepovertyandhunger ! Halvetheproportionofpeoplelivingonlessthan$1aday(ppp). ! Achieveincreasedemploymentforwomen,menandyoungpeople. ! Halvetheproportionofpeoplewhosufferfromhunger. Goal2:Achieveuniversalprimaryeducation ! Provideprimaryeducationforallchildrenby2015.Increaseenrollment.Increasecompletionofprimaryeducation. Increaseliteracy. Goal3:Promotegenderequalityandempowerwomen ! Eliminategenderdisparityineducation.Equalizemen/womenrationsineducation.Equalizemen/womenwagedisparity. Equalizemen/womenrepresentationnationalpoliticalassemblies. Goal4:Reducechildmortality ! Reducemortalityratesofchildrenunder5bytwothirds.Increaseproportionof1yearoldsimmunizedagainstmeasles. Goal5:Improvematernalhealth ! Reducematernalmortalityrationbythreefourths.Increaseproportionofbirthsattendedbyhealthprofessionals. ! Achieveuniversalaccesstoreproductivehealth. Goal6:CombatHIV/AIDS,malariaandotherdiseases ! HaltandreversethespreadofHIV/AIDS.IncreaseknowledgeaboutHIV/AIDS.Increasecondomuseforhighrisk populations.Increaseorphan/nonorphanschoolattendanceratio. ! Achieveby2010universalaccesstotreatmentforHIV/AIDS. ! Haltandreversetheincidenceofmalariaandothermajordiseases.Increasepreventativecareandtreatment.Decrease malariaandtuberculosisdeathrates. Goal7:Ensureenvironmentalsustainability ! Reverselossofenvironmentalresources.Integrateprinciplesofsustainabledevelopmentintonationalpoliciesand programs. ! Reducebiodiversityloss.ReduceCO2emissions.Reduceconsumptionofozonedepletingsubstances.Reducepercentage ofwaterresourcesused.Reducenumberofspeciesendangered.Increasepercentageofprotectedareas.Increases percentageoflandcoveredbyforest. ! Halvetheproportionofpeoplewithsustainableaccesstowaterandsanitation. ! Achieveasignificantimprovementinthelivesofslumdwellers.Decreasepercentageofurbanpopulationslivinginslums. Goal8:Developaglobalpartnershipfordevelopment ! Furtherdevelopanopenandfair,rulebasedandregulatedtradingandfinancialsystem. ! Addressthespecialneedsoflessdevelopednationsthroughdebtreliefdevelopmentassistance,andfinancialpolicies. ! Addresstheneedsofbothlandlockedandsmallislanddevelopingcountries. ! Addresstheneedtodealwiththedebtproblemsofdevelopingcountries.Makedebtsustainablethroughnationaland internationalmeasures. ! Provideaccesstoaffordableessentialmedicineindevelopingcountries. ! Makeavailableaccesstonewtechnology,especiallyinformationandcommunicationtechnology.

Appendix14FarmFriendlyDirectinAction TheCleanWaterandBalancedPlantNutritionProjectinGuatemala Attheurgingofrespectedplantationownerandgrower,MiguelinaVillatorodelMerida,PRCinvestedproceedsfromtheFarm FamilyDirectpograminamuchneededwatertreatmentfacilityatherFincaElPaternalfarm.Thefermentationprocessis importantinthedevelopmentoftheflavorofthecoffee,dueinparttothemicrobiologicalprocessesthattakeplace,butit resultsinwastewatercontainingorganicmatterlikepectin,proteinsandsugarsthatresultinadecreaseinpH.Thehighacidity ofthiseffluentmaydepletethelifesupportingoxygenofthewaterasitthenflowsintostreamsorotherbodiesofwater, potentiallyimpactinghumanhealthandaquaticlifeifdischargeddirectlyintosurfacewaters. ThefacilitythatPRCbuiltforMiguelinasendsleftoverwaterfromcoffeeproductionthroughaseriesoffilteringtanksthat removesmuchoftheorganicmatter.Thewatercanbereusedseveraltimes,andthencleanwaterisreturnedtotheriverfree ofcontaminants.Othergrowersthroughouttheregionnowtourthestateoftheartfacilityinordertolearnaboutthe benefitsofwatertreatmentandconservation.AccordingtoMiguelinathecleanwaterfacilityhasnotonlysavedthefarm thousandsofgallonsofwaterthattheycannowreuseforotheragriculture,ithasalsohelpedthemcomplywiththeveryrigid standardsoftheRainforestAlliance. Sincecompletingthewastewatertreatmentfacility,PRChasbegunanotherprojecttoimproveplanthealthandyieldatFinca ElPaternal,workingincollaborationwithKarnatakaCoffeeEstatesandRamadayMicronutrientsinIndiawhohaveused micronutrientapplicationssuccessfullyinmanyotherlocations.

Appendix15PortlandRoastingCompanyCoffeeDistribution

Appendix16FarmFriendlyDirectMarketingImages

Appendix17PortlandRoastingCompanyCoffeeDisplay(FredMeyer)

Appendix18PortlandRoastingCompanyLocalDistribution(BLineSustainableUrbanDelivery)