by Chelsea Jensen
West Hawaii Today
Wednesday, February 17, 2010 8:33 AM HST
Kona coffee farmers are losing out on up to $14.4 million in revenue annually to corporate marketers of 10 percent Kona coffee blends, according to a study released last Wednesday.
"Growers experience no benefit from blending as is now practiced. In fact they experience a loss that is possibly on the order or greater than the gain to the blenders," according to the study Economic Effects of Blending Kona Coffee by Marvin Feldman, an economist with San Francisco-based Resource Decisions. "With regard to the distribution of the impacts, the report concludes that the marketing of 10 percent Kona blends authorized by current Hawaii law results in a partial transfer of profit from growers to blenders and from in-state to out-of-state interests."
The study, funded by the Kona Coffee Farmers Association, assessed the economic impact blended coffee has on local growers who produce 100 percent Kona coffee. The study compared the current 10 percent blend law to the association's proposal to limit the use of the Kona name to 100 percent Kona coffee.
"This study validates what we were convinced was the case all along. The exorbitant profits made by the blenders from using the Kona name on a package of 90 percent foreign-grown coffee comes out of the pockets of the growers," said the association's president, Bruce Corker, noting that blends also flood the market reducing prices for 100 percent Kona coffee. "When you only have 3 million pounds of green coffee a year in Kona and can only use the name on the genuine article then the price is going to skyrocket. ... More money is going to come to the producers which will bring economic resources into West Hawaii instead of, as the study indicated, having these huge profits go to the blender and may ultimately end up out-of-state."
Under state law, use of the name "Kona" is authorized on packages containing a minimum 10 percent Kona-grown coffee.
In 2007, the state Legislature requested the Department of Agriculture study the labeling practice and address issues related to increasing the minimum content requirement from 10 percent to 50 percent. While the study found a change would have significant impact on producers, processors and consumers, it did not define whether that change would be positive or negative.
The department ultimately recommended an additional study be conducted to measure solely the economic impact, but funding for the study never materialized, leading the Kona Coffee Farmers Association to fund the preliminary study by Feldman, who also owns a small coffee farm in Captain Cook.
"It's a gross distortion of reality," said Jim Wayman, president of the Hawaii Coffee Co., which distributes Lion and Royal Kona blended coffee brands. Wayman, who said he had not finished analyzing the study, refused further comment.
Corker said with the study complete, farmers and blenders could begin making headway on a compromise to change Hawaii's 10 percent law. While the association would prefer a 100 percent law, compromises such as requiring that the product be 75 percent or at least 51 percent Kona coffee have been offered, he said.
"The problem we faced in the Legislature year after year is that the blenders come in and say nothing should be done unless there is consensus in the industry. But we're never going to get consensus in the industry as they define it," Corker said. "Because no one could finance the study it has been a very effective delay (tactic) for them and what this does is start the debate process with an economist's view of what indeed would happen."
Dexter Washburn, owner of the 5-acre Aerie Farm in Holualoa, said the study might even have been conservative based on the fact that data concerning Kona coffee production is limited and many blenders refuse to release data citing proprietary reasons.
"My own gut tells me that the financial implications of the 'counterfeiting' business is much larger than $14.4 million," he said. "From the amount of 10 percent sold, I think it would have a bigger impact on the market, but don't get me wrong, $14.4 million is a lot of money and if it's distributed amongst the 600 or so farmers it would be helpful."
According to the study, a majority of blended Kona coffee is produced by Honolulu-based Hawaiian Coffee Co. and Hawaiian Isles Kona Coffee Co. Messages left with Hawaiian Isle Kona Coffee Co. seeking comment were not returned as of press time on Tuesday.
Kona coffee farmers have produced 2.7 million pounds during the past 10 years of which about 10 percent -- or 270,000 pounds of prime -- is available to blenders. That 270,000 pounds, according to the study, produced about 2.2 million pounds of blended Kona coffee.
From the blenders' perspective, the value added by blending Kona and commodity coffee is based on the cost of the component green beans, plus the added cost of roasting and bagging.
After delivery costs are incurred, the commodity coffee trades at about $1.50 per pound in Hawaii and the average price of green Kona coffee during the 2008-09 season stood at $6.63, according to the study which ultimately found roasted Kona blend coffee costs $3.81 per pound to produce.
"Hawaiian Coffee Co.'s Web site lists their Lion brand at $16 per 20 ounces, resulting in $12.80 per pound. Hawaiian Isles coffee offers their blend at $16 per 2 pound package, resulting in a price of $8.00 per pound. Averaging these two prices results in $10.49 per pound," the study reads noting that sales result in a net profit of about $6.68 per pound.
Local growers have received an estimated $1.4 million from the sale of green prime Kona to the blenders, according to the study. Should farmers roast and sell 100 percent "prime" Kona farmers could make about $6.63 per pound.