Improving Quality in Coffee Chains in Papua New Guinea R. Murray-Prior and P.J. Batt C. Dambui and K. Kufinale Curtin University of Technology PNG Coffee Industry Corporation Perth Goroka, EHP Western Australia Papua New Guinea Keywords: coffee, PNG, quality Abstract In PNG, coffee that achieves A grade, Organic or Fair Trade certification sells at a considerable premium to the NY ‘C’. Unfortunately, only about 10% achieves this status, while 80% is Y grade coffee. The key reason for this difference in price, which is around US$0.30-0.40/lb, is poor processing at the village level, leading to inconsistent product quality. A number of chains have overcome this problem by improving quality through: (i) purchasing cherry from smallholder and blockholder farmers and processing the coffee in centralised wet mills owned by plantations and exporters to produce speciality coffee; (ii) delivering coffee to accredited organic and Fair Trade markets; or (iii) various projects sponsored by individual exporters, the Coffee Industry Corporation and international donors that provide smallholder collaborative groups with training in agronomy, processing and marketing to produce better quality parchment. While all options seek to achieve higher prices through improving quality, the first two options seek to move the coffee produced from the soluble coffee market to the speciality market where much higher premiums are potentially available. The advantages and disadvantages of these options are discussed and conclusions are reached about the likelihood of each being successful in the long run. BACKGROUND PNG produces most of its coffee at altitudes above 1,000 metres in the Highlands region. All the coffee produced in this region is Arabica coffee. The International Coffee Organization classifies PNG Arabica coffee in the Other Mild Arabicas category. While this is potentially good quality coffee, with the demise of the plantation sector, PNG coffee is receiving lower prices than average. Today, most PNG coffee sells at a discount to the Other Mild Arabicas Grade (or NY ‘C’) on the New York Board of Trade. In 2004 and 2005, around 60% of PNG coffee exports sold at a discount averaging US$0.13 to 0.14 per pound (Dambui et al., 2006). In 2006, around 75% by volume of PNG coffee was sold as smallholder Y grade coffee (PSC, Y1 and Y3), while slightly under 25% by volume (slightly more by value) was sold into the speciality market (A, X, Organic and Fair Trade) (Table 1). Germany and Australia are the major importers of the lower priced Y grades of coffee which are destined for the soluble coffee market. On the other hand, the USA is the major importer of the plantation grades (A, AA and X) which are sold mainly to the speciality markets. The main markets for the Fair Trade and Organic coffee are Germany and the USA. A Dualistic Coffee Production System In PNG, most smallholder subsistence farmers produce coffee for the lower priced soluble market with the remnant plantation sector supplying the higher priced speciality market. The decline in the plantation sector, largely due to problems with land tenure and law and order has contributed to a decline in the average quality and price of PNG coffee. Other factors such as poor roads and communications and the lack of bank finance also contribute to the problem. For smallholder coffee producers, numerous other barriers have been identified which impede their ability to deliver good quality coffee to downstream customers (Murray-Prior and Batt, 2007) including: confusion about quality; inconsistent quality due to inconsistent processing methods; confusion about the causes of low and 247 Proc. II nd IS on Supply Chains in Transit. Econ. Ed.: P.J. Batt Acta Hort. 794, ISHS 2008