Premier’s Macquarie Capital Business Studies and Economics Teacher

Scholarship 2012

From Cherry to Cup: Operations Case Studies

in the Coffee Industry

Cheryl Brennan

Illawarra Christian School

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Contents Introduction ............................................................................................................................................ 3

Focus of the Study Tour .......................................................................................................................... 3

Significant Learning ................................................................................................................................. 3

Australian Beverage Corporation ........................................................................................................ 3

Mareeba region: Skybury Coffee Plantation and Jaques Coffee Plantation ....................................... 4

Tea and Coffee World Cup Exhibition, Singapore ............................................................................... 5

Coffee Cupping ................................................................................................................................ 5

Coffee roasting ................................................................................................................................ 6

Coffee grading ................................................................................................................................. 6

Indonesian Coffee and Cocoa Research Institute (ICCRI), Jember, Indonesia .................................... 7

Tanzanian Coffee Industry .................................................................................................................. 8

Burka Coffee Estate and Kimemo Coffee Estate, Arusha................................................................ 8

Small Coffee Farmers, Tanzania ...................................................................................................... 8

Arusha Coffee Mill ........................................................................................................................... 8

Tanzania Coffee Board (TCB) .......................................................................................................... 8

Said Business School, University of Oxford ......................................................................................... 9

The teaching of Operations in England ............................................................................................. 10

Conclusion ............................................................................................................................................. 11

References ............................................................................................................................................ 12

Endnote ................................................................................................................................................. 12

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Introduction Coffee... it is something that our Business Studies students are familiar with. Many drink coffee

themselves, have part-time jobs in coffee shops, study Hospitality, live on farms and study

Agriculture, or have an interest in ethical consumerism. Coffee is one of the most traded

commodities in the world. Yet how much do our students, or indeed our Business Studies teachers,

know about the Operations processes that are involved with it? Not much, and yet it is so fascinating

and provides an ideal framework for case studies on the Operations topic!

Focus of the Study Tour “From Cherry to Cup: Operations Case Studies in the Coffee Industry” is the basis for developing

interesting and relevant teaching resource case studies for the HSC Business Studies syllabus. I

visited businesses and organisations in Wollongong, Mareeba, Singapore, Indonesia, Tanzania and

England to develop a thorough knowledge of the coffee industry and also to deepen my

understanding of how to teach the Operations component of the Business Studies syllabus.

Significant Learning A detailed record of my learning can be found on my blog which I kept throughout my travels at

www.hscbusinessresources.com.au/coffeecasestudies.

Australian Beverage Corporation

Australian Beverage Corporation1, based in Wollongong, imports and roasts coffee as well as

providing a cafe.

I took my HSC Business Studies class on a school excursion to this business at the start of the

Operations topic to introduce them to concrete transformed and transforming resources as they

observed the roasting process. We measured out the exact quantities of raw beans required for a

particular blend and poured this into the sifter, which then transferred the beans to the roaster. We

learnt about the temperature and timing required to produce the desired output. The coffee was

then roasted for about 15 noisy minutes, sucked out through a large vacuum pipe and cooled. The

students easily grasped the Operations concepts in the syllabus: the transformed resources

(materials: green coffee beans) being changed by the transforming resources (facility: roaster and

human resource) into the output (roasted coffee beans).

Students were very engaged during the excursion and readily understood the key concepts in the

syllabus. They were then able to grasp the more abstract Operations Processes (such as in an

importing business, a cafe or in accounting). I found this sequencing of the teaching the Operations

concepts superior to the sequencing contained in most existing teaching resources where abstract

operations processes are explained prior to concrete operations processes.

1 http://www.ausbeverage.com.au/accessed 17.4.13

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Image 1: Students benefited from seeing coffee at various stages of production, including these cherries at the local community garden.

Mareeba region: Skybury Coffee Plantation and Jaques Coffee Plantation

The next stage of my study tour involved Mareeba, Australia’s main coffee growing region, where

my focus was the on-farm transformation processes from the coffee cherry on the tree to the green

bean. The two main businesses visited were Skybury Coffee Plantation2 and Jaques Coffee Farm3,

which are both on the Atherton Tableland, where there is a reliable water supply, suitable

temperatures and a dry season. These features make the climate suitable for the production of

arabica coffee. Both sell wholesale and retail roasted beans to domestic and international markets.

The owners of Skybury Coffee Plantation and Jaques Coffee Plantation are very entrepreneurial in

taking advantage of many business opportunities, including most recently, by providing tours.

Coffee trees take 6 years to reach maturity, and produce at an optimal level between 6-15 years of

age. Harvesting occurs sometime between June and August, with a mechanical harvester. In

November, during the dry period, a stress period is initiated in order to stimulate a uniform

flowering time. This is caused by stopping the flow of irrigation to the trees for 5-8 weeks. The

flowers eventually form the coffee cherries.

Once harvested, coffee cherries are taken to the “wet plant” where they are pulped and have their

skins separated in the aqua pulper. Hard, immature beans are separated from the soft, mature

beans. The resulting “washed coffee” still has a relatively high moisture content and is allowed to sit

in water for a period up to 24 hours.

2 http://www.skybury.com.au/ accessed 17.4.13

3 http://www.jaquescoffee.com.au/ accessed 17.4.13

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The next stage is to reduce the moisture content with the assistance of gas heaters and a dryer for 2-

3 days. Once the moisture content is between 10 and 11 percent, it is “parchment coffee” and can

be stored in silos. This is followed by hulling – bean on bean friction to separate the husk. A machine

then grades the product by size, and the human eye is used to grade the product by colour. The

resulting green coffee beans are bagged by hand.

Both farms also have roasting facilities on site, similar to those I observed at Australian Beverage

Corporation except on a smaller scale. I learnt later on my study tour that the Australian coffee

industry is unique in having the entire process on the farm of origin, which is an advantage for the

emerging “coffee tourism” market.

Image 2: Microlight flight to observe the range of crops grown around Mareeba.

Tea and Coffee World Cup Exhibition, Singapore

From Mareeba, I travelled to Singapore to attend the Tea and Coffee World Cup Exhibition4 where I

participated in workshops on coffee cupping, grading and roasting, which improved my knowledge

immensely. I spoke to many industry representatives looking at expanding their business

opportunities in southeast Asia, including machinery suppliers from Europe and local entrepreneurs

looking to enter the market or to expand through vertical integration. Southeast Asia has a rapidly

developing coffee culture.

Coffee Cupping

Coffee cupping5 is an integral part of evaluating quality for potential buyers of green coffee. Large

coffee estates have cupping facilities and quality control departments, which I observed later in my

study tour. The beverage must be prepared and assessed in a standardised way for each of the

following steps:

Roast and grind;

4 http://www.tcworldcup.com/singapore/ accessed 17.4.13

5 Run by Carl Leonard, Vice President, Community Coffee, http://www.communitycoffee.com/ accessed

17.4.13

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Measure the ground coffee into the standard cup;

Pour – both the quantity of water, temperature and steeping time must be exact;

Break the crust – using a spoon, which allows the aromas of the coffee to be released;

Skim the remaining grinds;

Slurp – to spray the pallet with coffee and evaluate body, acidity and flavour; and

After-taste – the cupper allows the coffee to leave the mouth to evaluate the after-taste.

Coffee roasting6

There are two methods of roasting – blend roasting and split roasting, with the latter being more

expensive but providing more opportunities to optimise the roasting profile of each component.

There are changes to chemical composition that occur during the roasting process at various

temperatures, and with modern roasting facilities and computer technology, there is a greater

control over the degree of roast, the roasting time and the roasting environment (eg. the air to bean

ratio).

I saw various roasting machines in operation and spoke to the manufacturers about the technical

differences between the “shop roaster” sizes and the “industial” sizes. The smaller roasters are

“batch roasters”, meaning they produce a fixed quantity of roasted beans at a particular time, and

the beans are removed before roasting the next batch. On the other hand, continuous roasters

produce coffee at a continuous rate (kg per hour).

Coffee grading7

I learnt how to grade green coffee beans:

1. Separate all the defects out of the pile.

2. Sort the pile of defects into the separate various piles of defects.

3. Tally up the number of Category 1 defects and Category 2 defects.

Category 1 defects include full black (left on the tree too long); full sour (mouldy looking); and severe

insect damage.

Category 2 defects include partial black; partial sour; floaters (leathery); immature (almost irridiscent

green); and broken/chipped/cut (huller or pulper damaged the bean and cracked it open).

Accurate coffee grading is very important as the quality of the green beans determines the price.

6 Run by Dr Stefan Schenker, representing Buhler

7 Run by Carl Leonard, Vice President, Community Coffee

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Indonesian Coffee and Cocoa Research Institute (ICCRI)8, Jember, Indonesia

The focus of my visit to ICCRI was to appreciate the role of government in biological research and in

promoting business opportunities for Indonesian coffee farmers.

ICCRI conducts research to produce the best possible crop and it also offers training to coffee

farmers from all over Indonesia. Agricultural students who attend technical high schools visit to learn

about the processes involved in coffee cultivation. Almost every day there are people visiting to

benefit from what ICCRI has to offer. ICCRI is an excellent model for farmers to learn from, and it

also provides an important source of employment for many locals.

In a joint venture with Nestle, ICCRI conducts research into high-yield cloned coffee varieties that are

resistant to pests such as boring insects. I found the concern about pests an interesting point of

difference from my visits to the Mareeba coffee farms. Australia’s isolation has protected it from

such pests.

ICCRI attempts to use sustainable farming practices, for example, by using waste from the goats as

compost and by treating waste water before discharging it into the canals.

ICCRI has a “technopark” where a number of workmen were welding to make equipment that could

be purchased by coffee farmers across Indonesia at a subsidised price. They were making 100kg

drum roasters on site too. These machines rely more on constant observation to get the final roast

right rather than technology.

The government in Indonesia plays a significant role in shaping the development of the coffee

industry in that nation.

Image 3: Speaking to a farm worker at the Indonesian Coffee and Cocoa Research Institute, Jember, Indonesia. The plants in the

background are the robusta variety, suited to the higher rainfall of the region.

8 http://www.iccri.net accessed 17.4.13

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Tanzanian Coffee Industry

Burka Coffee Estate9 and Kimemo Coffee Estate10, Arusha

Burka Coffee Estate and Kimemo Coffee Estate are large-scale coffee farms that produce high quality

Arabica coffee.

There are a number of similarities between the two estates. Both are near the city of Arusha and are

beginning to feel population pressures – for example, in the sharing of the existing water resources.

This was different to my observations of the coffee farms at Mareeba and also in Jember, where

water was in plentiful supply. Burka Coffee Estate and Kimemo Coffee Estate both use “stumping”,

where the branches of the coffee tree are completely cut back to the base. This retains the existing

root base of the tree but allows new branches to grow through which will have a higher yield than

the old branches. Lack of plentiful water would explain the reliance on this practice.

Both Burka and Kimemo have wet processing facilities on site but, unlike the farms in Mareeba,

production ends at the parchment coffee stage. Parchment coffee in Tanzania is sent off-site for

milling.

Burka has a strong relationship with Starbucks, who sends its own auditors to certify the production

methods on Burka’s estate. Starbucks gives priority to farms that meet its standards.

Small Coffee Farmers

I spoke to two small coffee farmers in Tanzania. One produced seedlings for sale to other farmers.

Located near Moshi, he had a reliable water supply and his business seemed to be thriving. Another

small coffee farmer was from Kimilanjaro. He was more negative about the future prospects of the

coffee industry, saying that over the years the farm had been divided up amongst the children of the

family. The root stock of the coffee trees was aged, and he could see a day when switching over to a

different crop, such as avocado or banana, will make economic sense. He said his attitude was

similar to many other farmers he knew.

The small coffee farmers tend to be indigenous Africans, whereas the larger estates tend to be

owned by non-indigenous Africans or foreign businesses. Thus the colonial heritage of Tanzania is

still evident.

Arusha Coffee Mill

The Arusha Coffee Mill accepts parchment coffee from surrounding farms, which is processed on

site. The processes are the same as those I observed at Skybury Coffee Plantation, however, much

larger, allowing the business to take advantage of economies of scale.

Tanzania Coffee Board (TCB)11

The TCB regulates the coffee industry in Tanzania, largely through the centralised auction process.

Staff keep a close watch on the global coffee markets, with the aim of protecting the interests of

Tanzanian coffee farmers, as most small farmers have little knowledge of global coffee prices and

could be subject to exploitation.

9 http://www.burkacoffee.com/ accessed 17.4.13

10 http://www.kimemo.co.tz/ accessed 17.4.13

11 http://www.coffeeboard.or.tz/ accessed 17.4.13

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The TCB identifies a number of opportunities and threats to the coffee industry which match some

of my own observations during the Tanzanian leg of my study tour, including that the Tanzanian

coffee has a fairly strong global reputation, however, it lacks consistency and could perform at an

even higher level through better farm practices and more widespread use of stumping to counteract

the ageing plants in many areas.

Said Business School, University of Oxford12

At Oxford University my focus was to research fair trade initiatives at the Said Business School,

where the best-selling and most cited author on fair trade13, Alex Nicholls, is a lecturer. The research

was to investigate points of interest raised during my visits to small and large scale farms in

Australia, Indonesia and Tanzania. During my journey I asked for opinions on the efficacy of various

certification systems (such as Fair Trade) and in Oxford my intention was to compare these

comments with the academic literature.

In his 2005 best-selling Fair Trade: Market Driven Ethical Consumption, Alex Nicholls states the basic

concept of fair trade: consumers pay a small premium for coffee, with the understanding that the

money will go to the farmers. Nicholls explains that fair trade looks holistically at the supply chain to

address market failures, but acknowledges the need for profitability. He identifies three aims of the

fair trade movement: firstly, to alleviate extreme poverty through trade; secondly, to empower

smallholder farmers and farm workers to use trade relationships as a means of enhancing their

social impact; and thirdly, to support the wider campaign for global trade reform and trade justice.

He assesses the fair trade movement as being fairly successful in achieving its aims. 14

During my study tour to coffee producing countries, I wondered at the efficacy of the fair trade

movement since 2005, since a number of smaller coffee farmers that I spoke to seemed to suggest

that the costs of being certified outweighed the potential benefits.

At the Bodleian library at the University of Oxford, I read a number of articles on fair trade. I found

“How fair is fair trade?” by Demetrakakes15 particularly challenging to the success of the fair trade

movement. The author describes the recent split of Fair Trade USA (FTUSA) from its parent

organisation, Fairtrade Labelling Organizations International (FLO) based in Germany. The split goes

to the heart of the mission of fair trade: what kind of coffee farmers should be included in fair trade?

The traditional fair trade model (practiced by FLO) caters mostly to small farmers organised into

cooperatives. FTUSA, on the other hand, believes that large “estates” that employ many workers

should be eligible for certification.

FTUSA, led by CEO Paul Rice, believes that including large “estates” is the only realistic way to grow

the free trade concept and keep it viable in the marketplace. On the other hand, FLO believes that

extending the fair trade label to large “plantations” will dilute the concept beyond all meaning.

Matt Early, a roaster from the USA, stopped working with FTUSA in 2004 because he felt they were

moving too far away from the small coffee farmers. He says:

12

http://www.sbs.ox.ac.uk/ accessed 17.4.13 13

Nicholls, A. and Opal, C. (2005) Fair Trade: Market Driven Ethical Consumption, Sage, London. 14

Nicholls 2005 pp.5,25. 15

Demetrakakes, P. (2012) “How fair is fair trade?”, Specialty Coffee Retailer, 19(12), p.10-12.

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...(We) came away with the feeling that they really were not interested in the little guys who were

really trying to create change. Instead, they were interested in courting big companies who weren’t at

all interested in creating this sort of new understanding and relationship between farmers and

consumers.16

According to Demetriakakes, critics of FTUSA believe that large “plantations” already have a

significant competitive advantage over small farmers. These advantages will carry over into FTUSA

coffee. Coffee from larger “plantations” will have a lower price. Critics of FTUSA believe that many

consumers will be buying FTUSA coffee, believing that it is helping small coffee famers in a particular

way, when in reality, it is not.

Rice counters this by saying that FTUSA, by expanding the scope of fair trade coffee, will help

cooperatives and other small farmers by giving them the tools (capital, training, business

management skills etc.) to compete.

The teaching of Operations in England

I spent time with Lech Wersocki, Economics and Business Studies Post Graduate Certificate in

Education (PGCE) Course Leader at Middlesex University17, and also with Fiona Rodger, PGCE Course

Leader at the Institute of Education18, University of London. My focus was to compare the A-Level

Business Studies specification19 with the HSC Business Studies syllabus20, particularly for the

Operations topic. I visited several local high schools to observe teaching practices and to speak to

many Business Studies teachers about their viewpoints. This was to assist me in developing my own

teaching resource on the coffee industry.

The general impression I received is that similar Business Studies concepts and skills are taught in

England and NSW in the final two years of High School, with a focus on the four key business

functions21, although the structure of the courses is different.

Both in England and in NSW, class trips and visits are an integral part to a student’s understanding

of, and motivation to study, Business Studies. Class trips and visits should be well integrated into the

course content to maximise student learning outcomes. The Coca Cola bottling facility22 in London is

a popular destination for London Business Studies students, and visits to other countries are also

popular.

16

Demetrakakes, P. (2012) p.11. 17

http://www.mdx.ac.uk/ accessed 17.4.13 18

http://www.ioe.ac.uk/ accessed 17.4.13 19

http://filestore.aqa.org.uk/subjects/AQA-2130-W-SP.PDF and http://www.edexcel.com/quals/gce/gce08/bus-stud/Pages/default.aspx accessed 17.4.13 20

http://www.boardofstudies.nsw.edu.au/syllabus_hsc/pdf_doc/business-studies-st6-syl-from2012.pdf accessed 17.4.13 21

Finance, Human Resources, Operations and Marketing. 22

http://www.therealexperience.co.uk/ accessed 17.4.13

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Conclusion My study tour “From Cherry to Cup: Operations Case Studies in the Coffee Industry” enabled me to

gain a thorough understanding of the coffee industry in a short period of time. The coffee industry

provides an ideal framework for the Operations topic as it is readily accessible to students and

illustrates substantive Business Studies syllabus concepts.

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References AQA A-Level Specification http://filestore.aqa.org.uk/subjects/AQA-2130-W-SP.PDF accessed

17.4.13

Australian Beverage Corporation http://www.ausbeverage.com.au/ accessed 17.4.13

Burka Coffee Estate http://www.burkacoffee.com/ accessed 17.4.13

Coca Cola educational program, Great Britain

http://www.therealexperience.co.uk/ accessed 17.4.13

Community Coffee http://www.communitycoffee.com/ accessed 17.4.13

Demetrakakes, P. (2012) “How fair is fair trade?”, Specialty Coffee Retailer, 19(12), p.10-12.

EdExcel A-Level Specification http://www.edexcel.com/quals/gce/gce08/bus-stud/Pages/default.aspx accessed 17.4.13

Indonesian Coffee and Cocoa Research Institute

http://www.iccri.net accessed 17.4.13

Institute of Education http://www.ioe.ac.uk/ accessed 17.4.13

Jaques Coffee Plantation http://www.jaquescoffee.com.au/ accessed 17.4.13

Kimemo Coffee Estate http://www.kimemo.co.tz/ accessed 17.4.13

Middlesex University http://www.mdx.ac.uk/ accessed 17.4.13

Nicholls, A. and Opal, C. (2005) Fair Trade: Market Driven Ethical Consumption, Sage, London.

NSW Board of Studies syllabus http://www.boardofstudies.nsw.edu.au/syllabus_hsc/pdf_doc/business-studies-st6-syl-from2012.pdf accessed 17.4.13

Said Business School http://www.sbs.ox.ac.uk/ accessed 17.4.13

Skybury Coffee Plantation http://www.skybury.com.au/ accessed 17.4.13

Tanzania Coffee Board http://www.coffeeboard.or.tz/ accessed 17.4.13

Tea and Coffee World Cup Exhibition http://www.tcworldcup.com/singapore/ accessed 17.4.13

Endnote Visit www.hscbusinessresources.com.au/coffeecasestudies for the following:

the blog linked to my study tour, which includes a lot more photographs and explanations

than covered here in this summary;

details of my presentation at the Economics and Business Educators’ Annual Conference on

17 May 2013; and

the teaching resource “From Cherry to Cup: Operations Case Studies in the Coffee Industry”.