Juan Valdez Cafe

Sustainability That Matters - Support Social Responsibility By Drinking 100% Colombian Coffee!

Friday 28 May 2010, by Katharina Schrollkamp, Maria Pujol Alonso, Marta Meseguer Garcia, Sara Sanchez Sampedro

2 inspired

a) The main facts about the activities of the company.

The founders of the Colombian Coffee Growers? Federation (FNC) goes back to the year 1927, were both educated coffee growing elites and peasant farmers, united together to fight against foreign companies who by then already dominated coffee exportations in Colombia, paying for it far less than the market price. They were united by the common objective to protect coffee for the well being of their country, thereby supporting the national coffee growers (themselves).
Therefore the federation has been promoting fair trade by ensuring its farmers a reasonable and fair price. For instance, the cafeteros have the option to either sell their coffee to the FNC and get paid in return at the established price, or sell it to any other company or organization they wish (there are actually 50 private shippers as well as 40 cooperatives in the coffee trade market).
The legal entity of Juan Valdez was developed in the 1960?s, with its own logo as an indicator of Colombia?s coffee quality to consumers and as a strategy to boost consumption abroad.
Today, FNC?s headquarter is located in Bogot? and there are several foreign offices situated in the U.S., Holland, Japan and China. The main objective of the federation is to consolidate its coffee growing families? social development while achieving sustainability in the coffee growing business in Colombia.

b) The ethical challenges this company is addressing.

The Colombian Coffee Growers?s federation is far more than a regular coffee producing business. Next to their regular business activities (sell as much coffee as possible), revenue is used for:
-  Supporting the welfare of the Colombian citizens. The federation is for example in charge of managing the National Coffee Fund, which is filled with contributions made by the coffee growers, coffee sales and Juan Valdez brand royalties. It has been devised by the government which contributions should be reinvested in order to help the farmers as well as the further development of the coffee sector.
-  Investing in social services, helping so far more than 4 million people. Such social programs included, strengthening the education system by building over 6,000 schools, where 360,000 children are accommodated. In this way 80% of coffee growing families have access to primary education. In terms of healthcare, around 180 clinics were built as well as 200 rural health centers, improving the overall access to health services. Also, electricity was brought to 200,000 households, doing easier the lives of the families. Finally, in terms of transportation around 7,000 miles of roadways and 2,500 bridges were built by making use of the fund?s money.

Today a network of 36 coffee cooperatives has been established so that the FNC can hold the promise of its full purchase of the coffee grower?s harvest at fair and transparent prices (based on current market prices). The FNC also aims at eliminating the possibility that intermediaries keep a large portion paid by international markets by offering a widely spread distribution of the points of purchase. Through the ?Purchase Guarantee Policy? (2008) they hold 27% of the total national coffee export, which made the federation the largest individual fair trade coffee exporter in the world.

The FNC is collaborating with domestic and international corporations to positively affect the lives of coffee farmers, the communities, and the environment in general as well as the producer?s access to technology and connectivity. Successful achievements include the improvement of the residential infrastructure in Colombia?s rural areas, as well as credit accesses and social programs concerned with healthcare, education and transportation. In 2008 a total amount of $137 million was spent by the federation.

c) What makes you believe this company is really ethical and why you trust it.

Especially, the federation?s achievements make us believe that this company is really acting in an ethical way. Since the foundation of the FNC, the welfare of the country and the quality of the lives of the people have improved tremendously. The company truly managed to promote the economic and social well-being of the coffee growers in Colombia. The federation takes over many important task and might seem like a alternative for a government or a big business with sensibilities for social issues, however, it is still fundamentally organized as a consolidation of smallholder farmers and reveals to be a good example of what farmers can achieve when working together.

During the last years, the FNC successfully established a huge number of subsidiaries, which are for example the modern research institution Cenicafe?s (Centro Nacional de Investigations de Caf?), which mainly contributes to the high quality of the Colombian coffee and thus justifies the premium prices. Among the researcher?s achievements is the evolution of a variety of rust resistance coffee plants, the introduction of possibilities to biologically control the coffee berry borer as well as the development of water-saving coffee processing technologies. A wide range of the services are offered to the coffee farmers, which include not only research, but also support and advice through over 1,000 agronomists and technicians.

The contribution through the revenue made it also possible to finance the coffee fund Fondo Nacional del Caf?, which is a merchant marine fleet (FlotaMercane), a bank which is called Bancf? (Banco Cafeteros), as well as a freeze dried coffee fabric with the name Caf? Liofilizado. All these institution have been able to be established through the good work of the FNC and its brand Juan Valdez. Therefore it has been possible for the federation to make use of economies of scale, which in turn led to a greater value of the product and a higher contribution to the coffee fund.

Also worth mentioning are the social and educational programs funded by the company which carry the slogan ?sustainability that matters?. These initiations have lead to substantial improvements for the quality of life of coffee growers. The infrastructure of the country has substantially improved through transportation projects which turned muddy, impassable country lanes into a good road system, connecting partly remote coffee growing areas to the market. The connectivity of the rural parts has been improved through the introduction of a telephone system and extensive electrification programs. The lives of the farmers could also be improved through the development of aqueducts and waterworks programs. The Federation?s health and education programs also helped to supply some parts of the country with clinics and schools.

d) The possible challenges facing the company in the future and how you think this company may improve.

Nowadays the company Juan Valdez is facing three possible challenges that we are going to analyze in the following lines.

Although the FNC has over 400 Federation buying centres along the coffee belt, farmers have to invest time, effort and money, bringing its coffee from scarcely inhabited and remote areas with bad infrastructure to the centres. These farmers are often reluctant to pay at a lower price to more convenient private buyers. However, the federation is constantly investing in a better infrastructure and communication systems, which will make it easier for farmers to cooperate, compare prices, thereby making informed decisions, maximizing their profits.

Furthermore, in more marginal coffee-producing areas of Colombia, the organisation spends less money as less land is planted of coffee to person and therefore material benefits to the farmers are much smaller. By acting as the company is doing smallholders are arriving to the conclusion that the Federation is a large, public-sector bureaucracy and hence has to be treated with skepticism. Even thought, the company says that people are acting like that because of the agrarian and social crisis Colombia is suffering.
This situation is a great challenge for the company because this kind of issues (any kind of crisis) take time and, if we also add the fact that the company is huge (communication and participation problems), this implies that they are going to need time to organize their decisions and actions to take part in the issue and treat it as it has to be.
The company could start solving the problems that it is facing by enforcing participation of farmers at all stages of research and development and providing further education programs going in hand with research, clinics and schools.

However, overall it can be stated that the foundation has contributed to a relatively high social stability in the Coffee belt, by providing jobs, public works and other primary social needs, thereby providing a good example how the coffee and fair-trade problem can be tackled on a local/national level and in a sustainable manner.

On the other hand, the company is also facing and economical internal challenge because during 2008 and 2009 Juan Valdez had and important loss in its profits which are due to the rapid internationalization of the company. Juan Valdes started to focus on opportunities in new markets, including the United States and Spain. However, the worldwide economic crisis hit especially these countries very hard and thus limited the buying power of the new consumer base. The company was forced to close down some of its very important stores, which were for example located in Seattle and on the New Yorker Time Square. Stores in Spain had to be relocated to other regions where rents are cheaper.

Finally, as one final threat to the company or possible challenge to Juan Valdez we could add the fact that customers nowadays tent to buy coffee at the supermarkets and consume it at home rather than in a coffee shop, so they could try to find a way to take advantage of it by some innovative way.



Location: Bogota (Colombia)

Sector: coffee production

Official website: http://www.juanvaldez.com

Key figures:

Juan Valdez is a fictional character which serves as advertising for the National Federation of Coffee Growers (FNC) in Colombia, which represents the coffee farmers. Juan Valdez promotes coffee which is grown and harvested solely in Colombia. The EBITDA for the company in 2009 was $2.410 million but the real result of that year was - $12.760 million of pesos (increased from the last year, 2008)

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