USMCA Trade Agreements and Market Volatility

Black coffee This is the Cavoya Coffee Podcasting Network Coffee people talking to coffee people about coffee and things coffee adjacent This episode of Coffee Memo with Rob Stehven is brought to you by Cavoya Specialty Coffee where coffee is always a collaborative voyage Welcome to Coffee Memo with Rob Stve podcasts where we talk about coffee industry news and current events This is episode twenty one. and the topic is Well, it's sort of a list the things Rob heard and saw and said on a recent work trip around the world to the left the SCA today potential decaf regulations eyes on our longstanding free trade agreements with Mexico and Canada, and of course The market Please note, this was recorded on july second and we've had one full and we might say active trading day since then. So adjust your roller coaster parameters accordingly So Rob, I'm generally don't like to describe something as a potery But we've got at least four that. No. We've got at least four topics we wanted to cover. And if you don't use essential oils, potourriy generally has four ingredients. So I don't think I can help but use the description poterri for this episode. Could use cornicopia Oh, there you go. Yeah. That's a good one Well, let's see, it's been a while. It's been a h minute since we've done a coffee memo. and That's because I have been on a three and a half week trip literally around the world T the left T the left, to the left. I will recite my itinerary started here in Providence to New York City to San Francisco and then up to our office in Hedsburg B back to San Francisco to go to Tokyo and then to Athens, Via Munich and then Paris, Leone in Brussels And then home via Istanbul. Yikes, Yikes. So and on my flight home, I had to go back through New York because my Boston flight was delayed and then take the train home. So it was planes, trains and automobiles. Yes, and many subways as well. So yeah, so I took this three week trip around the world and it was all Coffee related. It was all work stuff saw a lot of things and learned a lot of things and I thought it would be great to just sort of talkalk through them you talk to a lot of people who have a lot of different points of view on the coffee industry? I did, I did. So let's start with Tokyo. So I was in Tokyo for that our parent company calls coffee meat, which is not a flavor of barbecue. But it is a big meeting of all of the senior leaders of our our own global coffee industry so just inside of OFi or OlLM It happens like every five years and they always do it someplace where you can have a little bit of fun talk about the business and talk about where we want to go and all that kind of things. And this was was a reallyally sort of bittersweet one because a lot of the people who founded our coffee business are retiring. And so a bunch of people including the Global CEO of our cooffee Division was his last day was other day. Yeah. And so It was really interesting to hear people sort of talk about their thirty five, forty year careers in coffee and all the things that they learned. It was also really sad. and a little bit scary to realize that for those people go, we're next. We're next. Yeah, yeah. I always have that feeling of like, there has to be somebody more adultier than me. my reflection on that was that they were talking a lot about was driving the business forward And I did a presentation on sort of what specialty is. and my angle of my presentation was that you know I made analogies of a specialty coffee trading business to what Formula one is to the automotive industry or what like Chanel is to the fashion industry. you start things there. It's not a lot of volume, but then it turns into the real thing, you know, sort of the mass spectrum thing. And it was a hundred percent evident in what was going on. I mean, it's like all of the things that twenty five years ago were just the purview of specialty are now spread across all these consumer Right. You know, things like traceability, started in specialty. Fmer ID, started in specialty, you know talking about single origin, talking about All these kinds of things started as passion put from people who started the spepeciallyty business and now it's super mainstream. So that really sort of struck me to be at a at a meeting of people who run a fairly large copee business and to see that You know, most of what we're doing today was really only in specialty fifteen years ago. Right. So then it makes you look forward and go, what are we doing now that will be mainstream in the future. It reminded me of the sort of ever changing nature of innovation. You know, everyveryone was talking about AI. It wasn't clear to me what we're doing now that will be the new thing going forward because there was just a lot of just it was it's kind of exciting if you like chaos leading to order Yeah, it's exciting, but if you're sort of like, what's the through line It was a little bit Nerveck. I'm wondering if we ever know I mean, I remember the keynote speaker for SCA and I the year two thousand telling us as an industry that the spepecialally Coffee segment was way ahead of the curve. R O sustainability So unless someone on the outside sort of tells you Yeah, do we ever know? Oh, we're one hundred percent too close to it. Yeah. Yeah. So you know, I find it interesting, like we do a lot of podcasts with our customers who are still on the frontlines of everyday specialty handing cups of coffee to customers they know kind of thing. And I feel like That's where you have to keep your ear of the ground because that's That's where it's going to come from Well, I went from there, I went to Greece I've got a client there that I've known for God more than fifteen years now. And they became friends of mine back when I was a key instructor And they were two of them were in my class throughrough that, we became friends and then you know, so I became someone who is able to work with them on their supply chain and So I had a really nice dinner with their CEO and their head of marketing, both their brothers and they're good friends of mine And It was one of those things where they've been in coffee for a long, long, long time and they have a very successful business and they have lots lots of coffee shops. And they were kind of I don't know. what's the word? they were dealing with almost like a disillusionment of having spent fifteen years in a market in Greece holding the highest standards brutal on quality approvals and brutal on know marketing correctly and roasting correctly and brewing correctly and doing all these things correctly and just feeling like It's a never ending battle against entropy and against the next The next hot thing and like, you know frruity, customized drinks and it' sort of like trying to keep it about the coffee in it really thought we could there. But the way the consumer is moving is sort of like, oh, shiny thing. You know, they hadn't lost heart. It was just more of like a It made me think back to ten, fifteen years ago when we all thought Everyone's going to come along U onn this journey. Yeah. Everyone's going to hold the line on quality and we're going to be really integrity and earnest about this and everyone's going to pick it up and everyone's going to get it. And just it just reminded me that it's a lot harder than that So you're talking about the idea that that if we stay focused on quality we can't lose Yeah and starting to feel like Sure you can.. Yeah, if this is winning Yeah I mean, I was really encouraging them not to give up the fight. but I think there is a an element of, you know, when times get tough and know, the economy is bad everywhere, I mean, I really saw that in Europe that the economy is struggling. And it's peopleople have choices to make all the time And it's hard to educate people who aren't interested, and it's hard to educate people who have other priorities. Yeah And so I think what I got out of that was the specialty industry is really going to have to innovate the way that it speaks to Consumers especially when they're in the consumer business as opposed to the customer business. And what I mean by that is more and more companies as they've grown and been successful have moved up their production capacities, moved up their capital needs and suddenly they have all this need for cash flow and volume and they get into Larger and larger production and larger and larger wholesale and bigger and bigger clients And suddenly that puts pressure on what kind of business they're doing. Yeah, right. And so suddenly to keep your specialty businessfoat you find yourself doing coffees that you didn't think'd do five years ago. And I think that's got a lot of founders and coffee people. re examamining their sort of thoughts on coffee? Yeah, existential angst. Yeah. Yeah. and it it's interesting, you know, because I absolutely see why peopleople are doing that business, they have to. Yeah It sort of falls into the category of this is not what I signed up for Mm I saw a lot of that as I was going through Europe. I sa I saw a lot of brands that are in places that I'm very sure that the founders didn't think they would be when they started it.. And it's just sort of this evolving nature of as things move from specialty into mainstream, this is what happens Yeah. You know, and then they get acquired and they get taken over by people who don't have any connection to what It really was when it started. And then people say, Oh, this this company isn't like it used to be. This becausecause is not. Yeah ye. we know these stories. we know them well. Yeah. ye. it was good for me to get out and sort of see it and to see it happening with sort of a European flavor. becausecause I've always thoughtought European Consumers were a little more sophisticated And they are, I think, on aspects of sustainability. I think the European consumer on average is more fluent with how sustainability works than the American consumer. but I think a lot of them are looking at the menu from right to left And not so much about what might be the best coffee experience that I could have. Right. Yeah, we spend a lot of time in mostostly in the exchange with Mark and Tada, I think what we're doing a lot of the time is trying to make people not feel guilty about having to have a successful business and some of the decisions you have to make which we would frame as creative sometometimes, you know, Yeah The Europeans feel more guilty about having some commercial grades in their lineup or Yeah,, you know, I didn't get guilt as much as I got disillusionment. Yeah, it's yeah, resignation. Yeah. ye. L yeah, we have to do this. But we don't have to like it kind of thing. Yeah. And So from there, I went on to SEA show in Brussels. So it's the European version of the speespecicialty cooffee show. Every time I go to SEA and I know that you know this really well because used to work for them, that the excitement that was in the electric excitement that was in the air fifteen, twenty years ago. completely evaporated. Yeah, right Now it's not to say that they're you know, the new people in the industry aren't completely excited by it. And, you know, even our team, when they go to SA, they're like really excited to go. It's just that it's it's no longer this one room where all the things are happening. Yeah. Exactly. You know, instead I think it's become a place where people are talking about Collectively, what's happening outside those walls. And so I think, you know, as people who have gone into this sort of these extensions of their business into into the strange parts of the forest. You know, when they come back to the SessA, they're reminded of what it was that they wanted to be doing. So it was just really interesting to see to see the evolution And it reminded me as a coffee trader that every coffee has a home and sometimes The value we can bring is to show people how they can to they want to do and what they need to do and sort of put a firewall between them. Yeah, right? You know, like, okay, we have to have this conversation over here and then we can go wash our hands and then we can come back and cup some coffee. Yeah. and talk about the real stuff, right you know. And while I was in Brussels, I had there was a board meeting of the Eespeci the coffee Association, which I'm a member of. and It was interesting to me also You know, Mark and I were on the board when it was the Specialally the Coffee Association of America. and now post merger, you know, it's a different thing. and it really is mirroring that growth? There's a lot of politics around how people feel about the SEA and I don't need to get into it one way or the other. But what is interesting to me is that the association is mirroring what's happening with the industry, which is that it's becoming more, it's becoming less of a passion project and hobby thing and much more of a large consumer sping company kind of thing. So the players change, the priorities change. Yeah, I say that when it comes to the SA that the rebels move into the palace Yeah, and that's it,. It's pretty nice here, yeah. Let's close the doors. Yeah. And it becomes a lot more about things like influencing policy, you know I'm learning a lot about the inner workings of how like origin country coffee associations work and it's been interesting to see that they're more and more willing to work together on things that, you know, they realize they're all in the same boat. Yeah um, in that it's big business and that they're, uh they have access to markets and they have access to influence things. And really what I'm interested in is the nexus of where that helps the most vulnerable in their countries. I still I see varying levels of success and effectiveness on that, you know, without calling out anybody but it's just There's lip service and then there's real action That's an interesting thing about sitting in that room is you get to see a lot of it playing out. I was happy to go home I was in Europe during that heat wave. I was in Paris. It was one hundred and fourteen degrees at ten o'clock at night. Gee. Yeah Andz you ever been there, it's a wonderful place, but Now a lot of air conditioners people literally jumping into fountains and going. I don't care that there's algae in here, you dont goh So that was my around the world trip. And you know, as Rick Steeves likes to say, the benefit of traveling is you get a change perspective I came back to two pieces of news. that I thought were worth. talking about both of which fall into the categories of thingsings that may happen but haven't yet But they're you know, I think the news put them on people's radar. So the first one is that there has been an ongoing comment period on a proposed regulation by the FDA to ban methylene chloride, which is banned most foods, but is still allowed use as a solvent in the decaffeination process. Right So methylen chloride is a fairly common product in the Dcaf world, you know, it's we sell some of it. It's Ver much used commercially. And a lot of there's a lot of plants that use that as the primary methods. known as the European method. Right Exactly. And so you know, someone filed a petition, their argument was clause in food regulation policy called the Delaney Clause. and it basically says If it's been found to be carcinogenic can't allow it in food Once you found that conclusively You have to ban it. Their argument was the delainey clause has been triggered. Why are you still allowing this and NCA is veryer much a sort of lobying agency on behalf of the coffee industry, filed a ninety six page response and which I did not read all of it, but C pilot did. Heav heavy on science. Yeah. Heavy heavy lot of footnotes kind of thing. And it boils down to If you read the law, it says that If it's carcinogenic by ingesting it Yes, that triggers the delaney clause. This is only found carcinogenic by inhalation and Also DcaA process is below what the FDA has said is toolerance for being present on anything. And then there's two kill steps between that. there's roasting and brewing, both of which are over forty degrees Celsius, which destroys it literally no longer there. Yeah. ye. rightight. people who filed the petition said we've done plenty of tests on Dcaf coffee and found some Yes under the limit your argument that it's destroyed doesn't hold up I don't know if that's been peer reviewed I don't know if that's a people are handpicking results or what. So all I know is that there are three possible outcomes. comment period is now closed. And so there's three possible outcomes. and one is that they'll just say, we want to keep looking at it and just kick the can down the road. And I would say that's probably the most likely sure thing to happen. The second one would be We're not going to ban it But we're going to look at it more closely, we might do more testing, we might ask a lot more questions and those kinds of things. And then the third one might be All right, we agree that this clause has been triggered, but We have to assess impact on supply and we have people who are already doing it. what's the phase out plan? and how much who can we grandfather and all that kind of stuff? And so I think the long and the short of it is that No one should be thinking that this deccaffeination method is going to disppear tomorrow. Yeah. It's just more of like it might become the kind of thing that more and more of the media ask about as attention has been focused on it It was lumped in with three other cancer causing elements And some of them I was surprised to use found are used in other aspects of food production, and the other ones looked a lot more menacing than this one. you know, there's one looked pretty bad. And It was like, you know, it's the ennvironal Defense Fund. It was like a consortium of groups that That's what they do Yeah and none of whom are I mean, all of them seemed to be good groups. I mean, there's no't it doesn't feel like there's underlying politics that we don't know about or anything like that There always is, but I'm sure. I'm always glad that someone out is out there questioning the man. And so I think the process should go like that. You know, the question is how are the decisions being made? Bottom line is you're telling everybody to sit tight. Sit tight Yeah And and this for me, this is one of those things where science doesn't care what your agenda is. You know, it's like the data is the data. It's just about how we interpret it. So We'll see, cooler heads may or may not prevail And then the last one, which isn't very much in the similar sort of We'll see. category is this recent development with the USMCA. USMCA stands for United States, Mexico Canada aggreement. It's been in place for a while It is a trade agreement between the three nations and it basically allows much easier cross border trade reduction in customs paperwork elimination of tariffs, which was more than things that allowed Mexico to import tar free even during that tariff crisis It has just generally smoothed trade between the three countries. And so, you know, as an importer, there's a green coffee importer, there's two areas where areas really where it affects us. One is that we buy coffee from Mexico. and so the importation of that coffee has been So smooth that often we can put it on a truck and just drive it over the border kind of thing. And the second one is that we sell green coffee in Canada. and be subject to The import Laws of Canada They're currently protected from the agreement, It could be tariffs, could be duties, could be all sorts of sort of hold upps. And then the third one, which a lot of people wouldn't think of is that quite often we take coffee from our inventory in the US Send it to Vancouver for decaeffeination. Swiss water, deecaffeination Yeah. and then bring it back And because it's a It's a product transformation. you don't have to deal with, you know, the taxes and stuff. But if that goes away, that could make That could have a pretty good impact on the availability of spot Dcaf So but similar to this FDA thing Nothing's going to happen anytim soon. Right. They just agreed that they would automatically renew the policy, they would review it every year. You know, it's one of those headlines that can make you think, oh o You know, we're in trouble. Yeah, this is a longstanding free trade. I think it goes back to the Clinton administration. Yeah. Yeah. Many elections have This has been a talking point whether it should have been done or should not have been done. But the fact is that just like with what's going on in the coffee market certainty helps stabilize things. And If you are very clear on what the rules are going to be you can do more business, you can do better business. And if you're unsure about what the rules are going to be, that introduces risk prrices go up for everybody. So that's the kind of thing where it's like another instability introduced into how business is working, whichich we don't need And then I think the last one I want to talk about was the market, the market. The market. What about the market? What about the market? which was going down as I indicated it might. And then but I also believe I said something about All sorts of volatility possible. and Jump jump back up another forty, fifty cents. right? So I think if you are lookingoo at your' fixation strategy and two thirty, two forty worked for you and you didn't pull the trigger. This is another data point to put in your O your noteepad. That's a polite way of putting it. Yeah. I'm never going to say that phrase, but Nobody likes it when you say that phrase. No, they don't I'm sure there's a lot of incments bu on what's going on in the market, but you know, ultimately There's going to be plenty of coffee here. It's just not here yet. Yeah. And the markets' are reacting to that. we have coffee on the way. We have so much coffee on the way. We have a fire hose of coffee on the way. Although I will say that as I look at our You know, our reports M of the coffee that's on the way is fully sold Fair enough. Yeah, it's it's people are have move their buying forward to the origin level. and that is O one of the hallmarks of a very tight supply market. You got toa get it before it gets here. Yeah, makes sense. Anything on your mind, Mike? No, I'm just getting a little warm. It's warm here. Yeah, we don't we have to turn off the air and it's like a hundred degrees outside. Yeah. and I'm going to go home and recover from jet lag. Thanks, Mikea. Thanks, s You've been listening to Coffee Memo with Rob Stehven, part of the Cavoya Coffee podcasting network where the executive producer is me Mike Ferguson Our theme music is Jealous Dogs by the Penders. Jealous doug That might be a good band name No If you've enjoyed this or any show on the Kavoya Coffee podcasting Network, please do all the things. Like, subscribe, review, don't keep us a secret, and take our Listener survey at the link in the show notes. Finally, remember two things. You can email me with thoughts, ideas, kind words, and limerickics at mic. ferguson at cavooyid d. com and bllack coffee is performed by the one the only Ella Fitzgerald. Rambling. This has been a CCPN production