Feed the Future
This project is part of the U.S. Government's global hunger and food security initiative.

For Myanmar’s Farmers, Life is Just a Bowl of Cherries—Until the C Price Hits a 10-year Low

Myanmar’s smallholder Arabica coffee farmers could be forgiven for assuming their status as darlings of the global specialty coffee industry might last forever. After all, over the past four years, their once unknown beans have been feted at trade shows in Amsterdam, Berlin, Seattle and Boston. They’ve been roasted, brewed, sniffed and slurped adoringly by coffee professionals at cuppings from Washington, D.C. to Edinburgh and London, and from Sydney to Bangkok and Seoul. In the process, Myanmar’s coffee has garnered rave reviews from elite roasters and importers, drawing attention from the likes of Blue Bottle, Allegro, Starbucks and Nespresso. Prices received by Myanmar’s coffee farmers also have exceeded expectations, with some Shan coffees fetching over $4 per pound, depending on scores—an incredulous feat considering that as recently as 2014, it sold to local traders at prices averaging 0.60 cents per pound.

The story of the steady rise of Myanmar’s Arabica coffee industry involves a cast of committed characters, with smallholder farmers and a core of entrepreneurial, local coffee millers (processors) willing to adopt new technology and explore new markets at its center, supported by technical and market advice from a USAID project called Value Chains for Rural Development, implemented by Winrock International. The Value Chains team set out to work with private sector partners to identify high-value crops grown by smallholders with potential to penetrate new or niche markets and raise incomes, if product quality and consistency could be improved. After careful analysis, in 2015 coffee was among the first crops targeted—a move that also took a leap of faith, considering that, at the time, even the best-traveled international coffee experts had no idea coffee could even be grown in Myanmar.

Myanmar’s coffee has come a long way since then, but the party may be about to end. Clouds are looming over the international specialty coffee market, where the benchmark price for Arabica on New York’s commodity exchange (known as the global “C price”), recently hit a 10-year low, at less than $1 per pound. Will Myanmar’s smallholder coffee farmers be able to adapt and cope with these and other market vagaries? 

“They thought because they’ve been receiving $3.30 per pound to $4.20 per pound it will always be like that,” Anne-Claire Degail, the project’s Senior Technical Manager, says with a smile. Over the past four years, Degail has become one of the biggest boosters of Myanmar’s smallholder-grown coffee on the planet. But these days, Degail tempers her enthusiasm, knowing that the country’s buoyant coffee farmers must buckle down and prepare methodically for a future in which they do not always find the right buyer or hit their pricing sweet spot.

With the exception of an occasional hail storm and a few late rain storms, “They haven’t had any defects with their coffee or any problems” in their first harvests, Degail said. They’ve also largely received the prices they’ve wanted, earning quality or social premiums in excess of the C price, in part because Myanmar coffee is still mysterious and novel, as well as being surprisingly good, thanks to rapid and broad adoption of improved harvesting and post-harvest practices and technology.

Late last year, the Value Chains team and a private sector partner called the Myanmar Coffee Association (MCA) decided to begin exploring some of the unknowns, introducing to farmers and other value chain stakeholders the somewhat abstruse concept of price risk management and mitigation. MCA and the project’s coffee team started by inviting Sara Morrocchi, a trusted international specialty market expert with good on-farm and off-farm knowledge of Myanmar’s coffee industry, to speak with coffee business leaders and managers of farmer-owned coffee enterprises located in the Shan highlands. Leading coffee processors also attended Morrocchi’s first price-risk presentation in November 2018, just before the coffee season’s harvest.

As discussions ensued, coffee farmers began to grasp how easily their currently sunny prospects could dim, especially after learning what some specialty producers in other coffee countries are going through as a result of global coffee market fluctuation. Yet, at the same time, they were able to begin identifying some mechanisms already in place that could help them manage and potentially reduce risks and exposure to market and price uncertainties, right in their own backyards.

Two newly formed Shan farmer enterprises, Shwe Taung Thu (“Golden Farmer”) and Indigo Mountain, were already negotiating pre-set prices for purchases of specified volumes of coffee from communities collaboratively producing high-grade specialty coffee. This obviated the need for communities to individually market their product, attract buyers and negotiate separate deals each season, lowering exposure and reducing risks. What’s more, both farmer enterprises secured pre-season financing on behalf of participant coffee communities -- one from a private bank guaranteed by an international social lender, Rabobank Foundation -- and the other from a major international buyer.

The price-risk discussions also helped Myanmar’s coffee farmers see the value of forging pre-sale agreements with good customers when possible, to lock in prices and volumes ahead of time, instead of waiting to see how the season goes and which buyers might show with offers. After attending Morrocchi’s trainings, which covered collaborative development of contracts between buyers and sellers, Shwe Taung Thu later signed Letters of Intent with buyers including Atlas Coffee Importers and Blue Bottle, both based in the U.S., while Indigo Mountain negotiated a pre-sales agreement with This Side Up, a Netherlands-based direct trade buyer, in the same season.

As the notion of risk mitigation gained steam in coffee, the Value Chains team adapted and presented a condensed version of Morrocchi’s training to ginger group leaders, briefing them on strategies to gauge and potentially reduce risks through product differentiation, buyer diversification and contracts, including key areas to be addressed in contracts to minimize misunderstandings and tension.

Following these sessions, ginger farmer group leaders returned to their respective townships and shared the risk management information with other farmers. What’s more, as a result of the trainings, they decided to consolidate their groups to ensure inclusion of only committed farmers, and began setting targets for collection of volumes of high-quality, chemical-free ginger to aggregate and sell next season. (It’s an ambitious but, they feel, achievable 638 MT for the season.) And, for the first time, the groups each calculated their break-even prices for production of fresh ginger without using herbicides at an average of approximately $200/MT, including costs for labor to weed mechanically instead of spraying. Based on their estimated costs for setting up and running internal quality control systems, and projected extra value for fresh ginger free of chemical residues, the groups set their minimum acceptable fresh ginger prices BEFORE the next season started – targeting an average $350/MT, the price they will seek to negotiate in future contract farming deals.

After the price-risk trainings, one of the six ginger farmer groups, called Shwe Chin Sein (Golden Fresh Ginger), began negotiating what has become its largest contract to date, with a local spice processor called Snacks Mandalay, which has agreed to buy an estimated 160 MT of high-quality ginger for export to a US buyer.

“Before the price risk management training, we did not think (ahead) on setting up prices,” said U Soe Myint Aung, Chairman of Shwe Chin Sein. “During the training, I was most interested in how to develop purchase contracts and calculate our production costs. I feel more confident negotiating a contract” now, he said.

So far, a total of 14 SME agribusinesses in Myanmar including extension providers and inputs suppliers, farmer groups and trade associations, food processors and seed producers have begun applying price risk management strategies to help diversify, grow and protect their businesses, as a result of the USAID project’s work.