Speaker 1:
From the Library of the New York Stock Exchange, at the corner of Wall and Broad Streets in New York City, your inside the ICE House. Our podcast from Intercontinental Exchange on markets, leadership and vision in global business, the dream drivers that have made the NYSE an indispensable institution for global growth, for more than 225 years. Each week, we feature stories of those who hatch plans, create jobs and harness the engine of capitalism right here, right now, at the NYSE and ICE's 12 exchanges and seven clearing houses around the world. Now here's your host, Josh King, head of communications at Intercontinental Exchange.
Josh King:
It's coffee time folks, as the temperature heat up outside, nothing sounds better than a crisp iced coffee enjoyed here in the ICE House. Our guest today is all too familiar with this wonderful beverage, Juan Esteban Orduz, is president of the Colombian Coffee Federation, the North American subsidiary of the Colombian Coffee Growers Federation. You may know that Intercontinental Exchange builds, operates and advances global, financial and commodities markets, including the iconic New York Stock Exchange where we are today. What you may not know is that ICE is home, to the global benchmarks for the Arabica and Robusta coffee futures market. What lies ahead for one of the most sought after commodities in the world, we'll find out right after this.
Betty Liu:
Hi everyone. I'm Betty Liu, Executive Vice Chairman of the New York Stock Exchange and founder of Radiate. I started Radiate with the mission to make leadership, learning more accessible to anyone interested in advancing their career and fostering a culture of excellence in their workplace. My team and I have handpicked and interviewed successful CEOs and thought leaders, asking them questions such as what's your biggest time saving trick or what's the best and worst advice someone gave you.
Betty Liu:
You can watch the answers from experts such as Jack Welch, Arianna Huffington, Gary Vaynerchuk, Steve Case, and many more by visiting radiateinc.com. That's www.radiateinc.com. I'm excited about expanding Radiate, and I'm working with my team at ICE and NYSE to offer this content and engage with our vibrant community. Keep listening to hear John Chen, chairman and CEO of NYSE listed BlackBerry, answer the question. What is the most important soft skill for a manager?
Josh King:
The Colombian Coffee Federation is one of the largest global world NGOs representing 540,000 or more Colombian Coffee Growers and their families. While he may be miles away from the mountains of Colombian, South America, as President of the Colombian Coffee Federation, Juan Esteban Orduz, is responsible for ensuring that the quality of Colombian Coffee and the quality of life for those producing it remains top notch. Welcome to the ICE House Juan Esteban.
Juan Esteban Orduz:
Thank you very much. Thank you for having me. And I'm glad that we could talk to your audience about Colombian Coffee.
Josh King:
We have to start out with the obvious Juan Esteban in 1960, Americans were introduced to Juan Valdez. A fictional Colombian coffee farmer representing the National Federation of Coffee Growers of Colombian and proudly promoting. One hundred percent Colombian Coffee. Let's hear a little bit from that iconic spot.
Speaker 5:
Throughout Colombia, South America, for centuries, the people have gone to the marketplace. It is here that they trade, it is here that they buy their coffee. Coffee grown by men like Juan Valdez. He washes the coffee by hand and then dries it carefully in the sun. The coffee is prepared for market as it has been for centuries, because for Colombians, their coffee is more than just the richest coffee in the world. It is a national heritage.
Josh King:
The commercials turn Colombian Coffee into one of the most recognized brands in the world. Juan Esteban tell me about it.
Juan Esteban Orduz:
Well, it's a long and beautiful story and this ad brought beautiful memories. So thank you for putting it on the air. When Juan Valdez was created, there was a big work, with people here in the US, people in Colombia, in the Federation thinking how could we tell consumers in the US especially, about the authenticity of Colombian Coffee. And there were lots of ideas.
Juan Esteban Orduz:
And there was one idea that came up at the time by the head of the Federation in Colombia called Arturo Gómez. And he said, "Let's bring a coffee grower. What's more authentic than the real coffee grower." So the first thing is Juan Valdez is not a fictional character, Juan Valdez, when you go to the Colombia Coffee towns, you will see that there are all Juan Valdez and there are still many in some areas.
Juan Esteban Orduz:
Although Colombia today is different than Colombia, 1960, who bring their coffee to the town for the Sunday market with a mule. So, the loyal companion Conchita is still present there. You still see the mules and you still see the coffee growers all over. So it's a beautiful story that started there based on authenticity and how to differentiate Colombian Coffee by telling the consumer Colombian Coffee is authentic, is grown with passion, with love. And if you try it and you'll be happy, you will have a great moment drinking a cup of Colombian Coffee.
Josh King:
It is about love. My wife and I love the product and enjoy it really morning, noon, and night with a good coffee after dinner. The Federation is about so much more than Juan Valdez. What was it's original mission before you got around the table and said, "How do we introduce it to America?" What were you trying to do?
Juan Esteban Orduz:
The Federation was founded in 1927 and the way it was founded is, coffee growers got together and said, "Okay. We need to sit down and see how we can have our voices heard and how can we talk to the government? How we can go to the market." And those people, and we all enjoy their vision more than 90 years later. They got together and they start to see how to improve quality, how to go out to the market, how to make it, make Colombian Coffee become the actual, the best coffee in the world.
Juan Esteban Orduz:
One of the first things they did, and I like to mention this is, in 1938, they founded our research center and this I just we want to illustrate the point of the vision they had. 1938, no one was talking about research, about developing new products, about technology, about productivity, sustainability.
Juan Esteban Orduz:
They were already talking about that. And that's 80 years ago, and they were talking about that they founded Cenicafé. They, created the group of researchers. They continued working in every conversation we have in the Federation still today. We always say, okay, how do we differentiate Colombian Coffee from other origins? And this is always a conversation. And we keep thinking, depending on what's going on the market, we go from, first, we have to have the best... Really the best coffee, not just say so, but really work on developing a very quality coffee. We are, as you know, the biggest producer of [foreign language 00:07:37] in highest quality. Then we came up with a Juan Valdez campaign. First, it was Alexi Henta. You remember that? No, you don't remember.
Josh King:
No, I don't remember.
Juan Esteban Orduz:
I wasn't born in there. But, and then Juan Valdez was born in 1960. And then in 1982, there was also the point, okay, how do we move ahead, differentiating ourselves? And we created the hundred percent Colombian coffee program that you mentioned at the beginning. Which is we sat down with the roasters, the biggest roasters, mostly in the US and said, how can we... We need to not just have the coffee, not just advertise it, but the consumer needs to see that what's inside the color... It's, really actual Colombian coffee. So we did that and we start advertising heavily for that. Those were different times in terms of the, ICO and the quota system. So it was a different market.
Juan Esteban Orduz:
And people started to recognize the, not just the origin, but also the logo and Colombian coffee in the US, in North America. And many places in the world was basically Colombian coffee, coffee in general was Colombian coffee and the rest. And that was a very interesting thing. Then you had the new system after the ICO economic clause were canceled. And, then we said, okay, what's next step?
Juan Esteban Orduz:
Consumers are thinking now or at that point was the era let's say of Starbucks and special based beverages in this market, which were not new in the Europe, but certainly new in the US. And we said, we need to also tell consumers, that Colombian coffee is not just a cup of brewed coffee. You have to, it's also a great coffee for Espresso. So we created the coffee chain Juan Valdez as well. And we have about 420 or 30 of those in different parts of the world. And they serve a dual purpose. One, of course, they are profitable, but on the other hand, they tell a consumer, Colombian coffee is not just, what was for our parents, the brewed coffee. It tells you whatever you want to have. You want to have a cappuccino, you want to have a latte, you want to have an espresso, Colombian coffee is good for that.
Josh King:
The logo is so good. It graced several of my t-shirts growing up. I see it in my mind's eye. All of our listeners will remember what it looks like, but take us back a little bit, Juan Esteban before 1938, give us a little bit of a history lesson in how coffee came to Colombia.
Juan Esteban Orduz:
Okay. Coffee came to Colombia... It is said that the expansion of coffee, when it came to Colombia from Africa in the 1800s, the expansion of coffee was, I don't know if it's true or not, but that's what they say. There was a priest that loved coffee. And every time you would confess... You go to confession, he would tell you have to plant coffee trees. And that was part of your, let me call it punishment, if that's the proper of the word. But the fact of the matter is that coffee start to expand quickly. And by the 1927, 1920s and early 1900s, the coffee growers, okay, we need to really make this serious. We have organize ourselves. We have to find a way to have a better living for the coffee growers.
Juan Esteban Orduz:
And we need to take, pay a lot of attention to international market. And of course the US market has played a significant role for Colombia. The way Colombian coffee's grown... If you look at the map of Colombia, remember Colombia is, one first thing to say is that many people think Colombia is a small country, but Colombia twice the size of Germany. So it's a significantly big country.
Juan Esteban Orduz:
And then you have the Andes mountain chain. When the Andes come to Colombia from Ecuador, they go from all South America on the West Coast, they open three mountain chains. So we have half of the country covered by three huge mountain chains. So you have every possible altitude and different types of soil, different types of climates in the different parts of the country.
Juan Esteban Orduz:
Beyond that, what also the farmers start to do is, okay, we need to, we're going the arabica beans. We need to... How do we make this be a great coffee? So first start picking the coffee. Only the ripe beans, that has made Colombian coffee, be a great product for the market, for consumers. When you say, coffee grows, pick the coffee with the love and they, cherish the beans, or?
Juan Esteban Orduz:
This is sounds like advertisement, but it's true. If they're really in any given crop, they will harvest. They will go to a tree six or eight, and pick only in each tree, only the red beans. So that's, what's one first thing. The second thing is very carefully treated and washed and clean and everything. So it's very pure.
Juan Esteban Orduz:
When you look at the sample of Colombian coffee versus some other origins with not such high quality, you will it's a very beautiful beans, all look the same, the coffee we export and all very clean. You don't have, beyond the bean, as such, you don't have stick stones or nails in the coffee. And that's thanks to a very, very thorough process that is made by the farmers and the Federation made where they got together. The farmers created the Federation part of it was okay we need to control that only the best coffee is exported. They had a great site.
Juan Esteban Orduz:
We had a wonderful product for the international market, but at the same time, the coffee that was left behind in Colombia was not the best necessarily. So Colombians did not drink such good coffee, and the market was drinking the best of our coffee, which made it made a great platform for Colombia and for the coffee and for the coffee growers. But we didn't develop the culture of very high quality coffee, which we are developing now. So now in Columbia has explosion of, I guess, like everywhere else in the world about, of new coffee shops of baristas, of espresso, espresso based, Cold brew, whatever ideas they can come up with. And they come up in the world, they come to Colombia first and everybody's is experimenting with everything. So we have a new explosion of that. So it's been a process, the whole thing of getting the best quality coffee.
Josh King:
So the harvest season is annual one time a year.
Juan Esteban Orduz:
It depends on the time of the year. And that's a very good question because the Colombian landscaping coffee has changed a lot. If you look at 50, 60 years ago, you had the central, what we call the El Cafeteros, the coffee region, let's say. It's with center Northern Colombian. They produced the majority of the coffee, let's say 70%, 75, 65, depending on the time. And they had one main crop, which is in the second semester.
Juan Esteban Orduz:
Then coffee started to move to the south as well. And the biggest producing state at the time was Antioquia. The state was which capital cities of which a capital city is Medellin start to move south. And now we have... And they had a produced typically 30% of the coffee in the first semester, whichever, the crop takes place in the south.
Juan Esteban Orduz:
And we called it, we used to call it the big one, the main crop, the other one called midaca the midterm. And the midaca is the word that we use there. Now, and they start to shift and now you have close to 50/50. Interested enough in that to the point of how it's shifted. It has changed. The biggest producing state is not anymore int he north, which is the second biggest, very close second. But the second and the biggest is Antioquia, which is in the south. And those are completely different coffees. And we have today about 50/50 situations in terms of production first semester, second semester.
Josh King:
And then pick up it's movement to the North American and European market. It's picked and harvested in the various states of Colombia, washed, prepared, selected, and then sent North and East. How does then it make it's way into either packaging from the various brands or at Starbucks or other retail establishments.
Juan Esteban Orduz:
Typically, what happens is, as you have in Colombia, you have, or any country for that matter. You have all the, in this day and age, big coffee companies, they have a presence there, directly or indirectly through traders or exporters, and they will go and search for the coffee. In some cases, you're looking for mainstream coffee. In some case, you're looking for specialty coffee, you want a certain cup. You want certain community, you want a certain type of values behind the coffee, organic or certified by someone because of certain practices.
Juan Esteban Orduz:
You purchase the coffee. In some cases, it gets many containers to one customer, more the bigger, the much bigger roasters. In some cases, it's very small. Some, buyers want, just five bags, six bags, 10 bags. So micro lots of coffee for a small roaster, for a small shop, somewhere in the village here in New York. So all these things take place from the mainstream and to the very specialty and very, rich... Exactly, they are rich very special coffees. So it's a whole, it's a spectrum of coffees that you can-
Josh King:
So into the business of coffee and how it's purchased, traded priced. Can you explain for our listeners how the commodity market works for coffee?
Juan Esteban Orduz:
Yes, it's interesting because the coffee, the reference parts let's say is the C contract, the features contract of the Exchange and ICE. And that's, fluctuates with the market. It's a market based price and then coffees have a premium or a discount on tea in ICE. So if... The ICE is, or they have the purchaser of last resort. Typically the coffee moves in and out, it moves to the customers directly and so on. But the reference price is the C contract.
Josh King:
And we should explain for our listeners, ICE, Intercontinental Exchange is the company that acquired the New York board of trade. Is that right? Which was the, you remember from, our listeners will remember from trading places that coffee was traded in the open pits. And now it's fully electronic using the process you're talking about now. So when you're referring to ICE, that's Intercontinental Exchange.
Juan Esteban Orduz:
The C contract, the C price is the reference. And then when you negotiate coffee, you negotiate C plus something, or C minus something, depending on premium or discount on what you're dealing with. The reference prices is the price that the market that establishes. And then you have the coffee just goes, flows from the producing country, producer to the roaster, to the trader directly, doesn't go... The prices they reference.
Josh King:
How's the market changed over the course of your career.
Juan Esteban Orduz:
I joined the Federation 15 years ago, so I have 15 years experience with coffee and it was already changing. I think it's on one hand, the price situation is very concerning. It's traumatic for the producers right now, but at the same time, you have an explosion of specialty coffees. And one of the things and of values behind the coffee. You have the Starbucks situation, creating coffee shops and places where we want to drink the coffee and so on.
Juan Esteban Orduz:
So that changed a little bit, the landscape, a lot of the landscape, especially North America, which is the biggest consumer. And then you start to have a lot of consumers being more and more discerning, having more information. I think the internet played the key role there, because now they can track the coffee and they ask where they make that coffee from? I'm going to say coffee, from which happened to me, this is an anecdote I went to a meeting at, CFTC years ago.
Juan Esteban Orduz:
And then I met a person there who said, "I'm being told you're from Colombian Coffee Federation." This was in, I want to say 2004 or five. And I said, "Yeah, sure." I drink coffee from [foreign language 00:20:12] is coffee from two different municipalities, but basically one region. And I say, oh, wonderful. I buy it over the internet and I have checked it. I checked it out. I've seen everything region over the internet, everything. That to say that consumers now are very, very discerning. They want to have a good cup of coffee. They want to, certain values behind the coffee.
Juan Esteban Orduz:
And they want to know where the coffee comes from. Beyond there, just the values behind the coffee. They want to know where the coffee comes from. And, in some cases who grows the coffee, some people want coffee from a certain estate or certain small community in a certain place.
Juan Esteban Orduz:
Now we're moving to the, not just the special, but the values market, and now our goal, what we're working on. And, I'm very glad to be in charge of that program is we're going to, the federation will be a hundred years in 2027. When that happens, when we celebrate our first centennial, we expect to have a hundred percent of the farms be sustainable in Colombia. So we call this a hundred-hundred program because we think the next step for differentiating ourselves from everybody else in the market is be sustainable. And, have the whole country be a sustainable country for coffee. No country has done that before in coffee or any other crop in the world. So we're trying to... This is our next big step as Federation and as a country.
Josh King:
And I want to get more into that in a few minutes, just on your concern about the current price of coffee, a factor more of declining demand or expanding supplier, or both.
Juan Esteban Orduz:
Let me tell you something. I think there are lots of theories and there are as many answers people you ask a question to, some people say it's a matter of just demand and supply. Some people say this current point, people are expecting the coffee from Brazil. Some people say, this is a lot of speculation by non coffee players. Just, financial speculation, let's say. To what extent is something that no one really knows exactly what is what.
Juan Esteban Orduz:
The big concern is, if you look at what happens, is coffee has been close to around 110. Let me give you, two figures. In 1982, the coffee quarter system was in place until 1989. And then it was, canceled as such for the hundred percent free market. In 1982, the pound of coffee moved between 118 and 141.
Juan Esteban Orduz:
This week, coffee was at 110. What that tells you is the following, coffee producers have lost between 50 and 80 or 90% of the purchase capacity in the world. So this is dramatic. And that's only if you took the pound of coffee and you put it using US inflation in today's numbers, coffee should be between three or four and 351. And that's a big drama. And to the point again, is if you were a coffee grower, people in Colombia, coffee grows in Colombia have, we used to or there are a lot of those. The Willys Jeeps these old second world war Jeeps in 40 and 50s. Beautiful. And we use them in the coffee region. We call them G-Power. And G-Power, is you get these, Jeeps full of coffee. And, they put everything there. The whole moving the house, moving everything in those Jeeps. The equivalent of that Jeep in 1982, the basic was the Jeep called the CJ-7.
Josh King:
I have a 1983, CJ-7.
Juan Esteban Orduz:
So you know what I'm talking about. Today is the Wrangler is the name of that same Jeep. If you were to buy one of those Jeeps in 1982, you had to pay to produce 8,200 or 80, let's say 8,000 pounds of coffee. Today, as a grower, you have to produce 27,000. So you have to pay more than triple for the Jeep in terms of your income as for the same, for the exact same product, which is something used for your farm. So that what tells you that the situation is really deteriorating and the popularization process in for the producers is currently traumatic. So I think the industry as a whole, the whole chain has to do something with it. And we need to sit down responsibly and see what we do with, to increase improving situation of the farmers.
Josh King:
At ICE's midtown office, Juan Esteban we have a coffee roasting and testing lab. You've seen it. How important is it to the Federation that ICE maintains a traditional space for that, for the market to use. I've seen the graders, tasting the coffee and spitting it out quickly and making sure that everything that comes through ICE's grading lab is highest quality.
Juan Esteban Orduz:
I think it's very important because C stands for something. C stands for the centrals, but that means a certain quality. If you were to get coffee from the exchange, and you don't know if you're getting... Let me go more dramatic. If you're getting a washed Colombian or an unwashed Brazil, how can you trust the system? And this was our point was, if you put such a big margin Brazil, you may pull down the price. If you put, if you lower, the quality, even the trust in the system will be a question because what's behind the contract. Is it what kind of coffee is there? So this is... For us, it's very important that ICE, respects the quality and keeps, the foundation of the C contract. It's trustworthy.
Josh King:
We were speaking earlier about semi cafe, arguably one of the most important coffee research centers in the world. What are some of the advanced technology coming out of the coffee industry and how will that aid Colombian coffee growers?
Juan Esteban Orduz:
Are you ready?
Josh King:
Yeah. Bring it on.
Juan Esteban Orduz:
This is a long answer. Because Cenicafé has lots of things, but in some could look, could seem basic, but they're not. There's one part is one of the biggest, threats to coffee is the illnesses the coffee may have, the coffee frost. For example, we call roya in Spanish or the Boer which is the Broca. The Roger happens. It's like a fungus. It looks like rust on the leaves. And, the Boer is basically a little insect that goes and eats the seed, the coffee bean from inside.
Juan Esteban Orduz:
We had a serious issues with roay. Roya flourishes with high humidity. And we have, Cenicafé has been able to develop, rust resistant varieties. There's no rust immune, but rust resistant with climate change which is one of our biggest concerns, so now is, and you cannot really predict the rain patterns.
Juan Esteban Orduz:
So you can have lots of [foreign language 00:27:18 ] which is lots of rain, and that will increase the levels of roya. So they have developed those varieties. They have developed different technology for more crops. Now they're working, in technologies and softwares that you will be able to use to monitor the crops with drones in certain softwares, not just visual software, but also temperature and looking at the colors and all those things that you can measure.
Juan Esteban Orduz:
That will make it easier to control the health and promote the health of the trees. Something I forgot to mention before, some of the very important Federation, we have a group that we call the extension service. We call they use yellow, Polo shirts. We call the yellow shirt army, because they are about 1500 people, they will be 13 and 1500 people, depending on the time that go all over the country, to all the farms, to help the coffee growers, best practices to fight against diseases, renovation programs to move from non-resistant varieties, to resistant varieties, all those things we do not just produce the tree, produce resist varietals, but also encourage people and make sure incentivize that they will change.
Juan Esteban Orduz:
They will move to resistive varietals. And that's a big challenge because you have to make it resistant, but you have to keep the quality. And that's one of the key things. The last varietals is Cenicafé.
Josh King:
Are the resistant varieties more expensive or acquisition cost to for the raw materials?
Juan Esteban Orduz:
No, it's basically we supply that to the farmers. We cannot force anyone to grow any tree, but it's incentive for them to move, to resistant for varietals. I remember having, being in a meeting, having conversation with, one of the biggest roasters, and he told me, you Colombians, you're done, you're out. You're going to become a small origin. This is it. You cannot lose the third of your production and then recover.
Juan Esteban Orduz:
By 2014, we were above 13 million bags . And last year we were 14.2 million bags. And we are still in that. So we not just recovered, we increased and kept the quality. One more thing that they're doing for instance is, we've been picking the coffee now until for even today, the same with what we did when the Federation was founded, that's it. Go to the tree, pick the bean by hand and so on.
Juan Esteban Orduz:
The new varieties Cenicafé is, keeps it quality, is resistant, but it's a little bit, it's not so white and also tall, easier to pick the coffee. And at the same time, we have developed a product, which is a mechanical hand, let's say with a little metal fingers that vibrates a certain speed that when it touches the branch only the ripe trees will fall. And there's something was designed by Cenicafé to receive the beans. And then you just wrap it and take it away. Don't just... So you don't have to... You go, but you go with this mechanical thing. So makes life much easier. For, your audience. For those who have not been a coffee farm, when you see the people picking the coffee, it's very steep slopes.
Juan Esteban Orduz:
In some cases, you have to have a rope around your waist, tie it to the tree, so you don't fall. And then you have a bucket in front of you and you'll pick the coffee, you pick the coffee and then you go back, if you are a picker, then you will get paid by weight. So there's new invention from Cenicafé will make it much easier for them because you just put a mechanical thing. Only the ripe trees will ripe, cherry will fall. They will be on the floor that will... On the floor there will be like a mat special method designed. Then you have to wrap it and you just bring that up. So it should be much easier for, easier because, and make it things more productive, increase productivity for the farmers.
Josh King:
The process of harvesting the world's best coffee and the technologies that are driving advances in it. Our conversation Juan Esteban continues after the break, will talk about the Colombian Coffee Federation's plans to become 100% sustainable within the next decade, that after this.
Betty Liu:
Betty here again, and as promised, here's a quick answer from John Chen, Chairman and CEO of BlackBerry on the most important soft skill for a manager.
John Chen:
I think is transparency is very important. And I think fairness is very important, if you could be transparent and it could be fair, sometime it might be tough, but people will follow you because they know where they sit. They don't have to second, guess what you're saying? And I think that makes the sign, of a true good manager.
Betty Liu:
You can watch John Chen's answer and other short videos by visiting radiateinc.com. That's www.radiateinc.com.
Josh King:
We're continuing our extended ICE House coffee break with Juan Esteban Orduz President of the Colombian Coffee Federation. Juan, you are no stranger to the world of Foreign Affairs. Before joining the Federation, you walked the storied halls of Harvard University as a fellow at the Weatherhead Center for International Affairs. You also served as minister and deputy chief of the Colombia Embassy in Washington, D.C. But coffee is clearly a source of pride and passion for the Colombians and for you, how did you get involved in it?
Juan Esteban Orduz:
When I was at the embassy in Washington, D.C. I was lucky to be part of a team that put together a program called Plan Colombia, which is basically the biggest bilateral program between Colombia and the US for security for... Not just for counter narcotic and security in Colombia, which in term, is the one that led in the end, this corporation program to the peace agreement that we signed last year or in 2016.
Juan Esteban Orduz:
I had a couple of conversation with the CEO of the Federation in Colombian. And they were very concerned about the prices of coffee. At some point, if you remember, coffee ended up being below 50 cents a pound and we start discuss, okay, how can we do this? And how can we raise the awareness?
Juan Esteban Orduz:
And how can we have a... Let's say raise the level of discussion. So I had part of planned Colombia, part of my work was to do lobby in the US Congress. And so I said, why don't we have a here in Congress, let me talk to a couple of congressmen who are friends of mine and see if we can do it. But I told the head of the Federation of the time, i said, but you have to come and testify and explain what's happening. So we did that. So as a result of that, the Federation told me, would you like to, would you run our operation North America? I'm by training, I'm a Corporate Attorney. I used to be working mergers and acquisitions with those things before deciding to not make money.
Juan Esteban Orduz:
And do something else and go to the government. I ended up saying, yes. It also depended, I must say, on, not hundred percent on me. Because my wife wanted... She's a lawyer. And, she was, I was about to go to Harvard. I had been admitted to Harvard and she was going to have a master's degree in law and at Harvard. So I was like, we had agreed that when we went both to Washington, she would follow me. And the agreement was the next step. I'll follow you. And I said, will you? And then I had to convince her.
Josh King:
As it is often in couples.
Juan Esteban Orduz:
So I had to convince her and she said, "Okay, fine. Let's stay in New York." And that was in 2003. And here I am. So it had nothing to do with coffee with the bean, had to do with, policy because after the discussion Congress with the US industry, I start to have a very serious conversation with them and with the Federation. And so I started to get very much involved in policy and for coffee.
Josh King:
So let's talk about policy a little bit. We began our conversation Juan Esteban about talking about our good friend, Juan Valdez. You told me that there are thousands of Juan Valdez still working the mountainside and the coffee farms of Colombia. How do Colombian coffee farmers working in these smaller scale farms compete with the mass production coffee operations in Brazil and Venezuela.
Juan Esteban Orduz:
It's not easy in the sense that if you were to compete, producing the exact same thing, it would be impossible. But the big difference, and I'm not speaking badly of any other coffee is that we Colombian coffee growers understand that their strength is the quality. When you go to the industry, if you are a roaster, you're a big roaster, and you want to have high quality coffee the whole year round, timely delivered to you. The easiest thing is to deal with Colombian, because all coffee that comes from Colombia, the 50 years I've been here, I've never heard from anyone, this coffee, I got from Columbia is lousy, never. In some cases, like in a business, you have some issue that the humidity of the port or something happened. But the quality of the coffee is such intrinsic. Quality of the coffee is never bad.
Josh King:
Have you sensed that other countries are keeping their eye closely on you trying to replicate your practices to try and compete at the level of quality that you were able to deliver month after month, year after year?
Juan Esteban Orduz:
I guess, lots of countries aspire to have good coffee. Some of them have great coffees and... But they typically don't have the structure that we have in place. Let me give you an example. Colombia has close to 1100 municipalities. In 600 of those, we have coffee, we produce coffee. And in every single municipality that produces coffee, the Federation is present and we have all these economists in Cenicafé, all those things that created real structure. And we have... We also have always had very strong support from the government because coffee in Colombia is very important. No, just the romantic part of the love of growing coffee. But remember we are a conflict country. We had a country that had 50 years of conflict and it's been, we see it in there, studies that show it. And when you see it, where coffee is grown, social fabric is much tighter.
Juan Esteban Orduz:
And with social fabrics much tighter, the intensity of the conflict was less. So coffee has been a very, very... It used to be the spinal cord of the Colombian economy. Now the Colombian economy has grown a lot and you have oil, you have coal. From the culture product, we're the biggest, but in terms of social fabric, in of creating employment and development in the countryside of Colombian, it is huge.
Josh King:
How has the Federation succeeded in improving the overall working and living conditions for the Colombian coffee farmers?
Juan Esteban Orduz:
We have lots of programs with lot of social investment we built, and we work very closely with the government for that, schools, hospitals, roads, you name it. And we are pressing all those things. We work. We have also significant port operation, every Colombian port to make sure that, and we control that the quality exported is the right quality. And, there are no... There's no monkey business going on with Colombian coffee, or the coffee is being exported that meets the expectations of the market.
Juan Esteban Orduz:
So that is also not just the social programs, not just the quality, not just productivity, but also the market trusts Colombia's origin for high quality coffee. So it's a big scope of things. Plus include the extension service. All these people, going all over, all this just sets, but all these Colombians going all over the country help working with the farmers. All those things make Colombian coffee... Columbia, is an origin for coffee, a very special and very well structured one.
Josh King:
Americans love their coffee, so much. Juan Esteba is coffee, tourism becoming a thing.
Juan Esteban Orduz:
Coffee tourism is becoming a big thing in Colombia, in the traditional coffee region, what we call the Eje Cafetero and also in the South now as well. And we have not just every possible sport there, it's a beautiful area. In fact, I invite you guys to go to Colombian soon and all your audience and it's beautiful thing. You have beautiful colonial farms that have become hotels, where you can, for instance, you go with a couple of friends and their families, you can rent a farm, you have a beautiful house. You have someone that will cook you Colombian meals. You spend some days there, you have a pool, they have built a pool, everything... And you can pick coffee. And then you can... We have something for instance called El Parque Cafetero, El Parque Nacional Café which is a beautiful theme park.
Juan Esteban Orduz:
And the theme is coffee, it's for kids. It's fantastic. I mean, there are lots of things to do. If you go with kids, it's a lot. And the farm experience is very nice. You can pick the coffee and that the first day you do it very happy. The second day you are happy still. The third day, you say, okay, do I have to pick coffee again? Because you have every muscle in your body will be sore after three days picking coffee. But it's a very interesting experience. And then you will be able to roast the coffee you picked. The coffee from the farm you picked because it has to be brought, but you'll be able to drink coffee from the farm where you are staying and you're picking the coffee.
Josh King:
So you're talking about the experience of an American coming down who is forced to pick coffee for three day... Three hard days in a row. But these farmers who spend their whole lives week after week, year after, year in picking coffee, as we mentioned earlier, Juan Esteban on 2027, the Colombian Coffee Growers Federation celebrates its 100th anniversary. Tell us a little bit more detail about the hundred, hundred initiative for Colombian coffee, your goal to become 100% sustainable by 2027.
Juan Esteban Orduz:
Okay. Thank you for the opportunity, because this is what's taking a lot of our attention as an organization. And certainly a lot of my time personally, and my team here in New York. Because what we expect to do is to create the standards for sustainability, which are basically the standards you would expect in any sustainable practices going from the ones that many companies have. And I don't know if I'm allowed to mention companies here, but the AAA from espresso, the CAFE practice from Starbucks. All many companies have those, or the certifies like Rainforest Alliance or others.
Juan Esteban Orduz:
And this is also something we are differentiating ourselves, but also we are responding to what the market's looking for. Many of the big retailers and roasters.
Juan Esteban Orduz:
What they're telling us is we want some, we more sustainable coffee. And retailers and big retailers are saying, by 2020, by 2025, by 20, whatever, I want to be have all my coffee, my source coffee has to be sustainable. So we've been working on sustainability all the time, at this point in Colombia without having started a program yet. About 40% of 42% of the farms already involved in certain in sustainable practices. So we said, okay, we need to differentiate ourselves, we need to react to what consumers are looking for and be sustainable. And then we started to analyze how we can be sustainable. You can be socially, environmentally or economically sustainable. The environmental part, everybody's looking at, the social part more or less, I'm sure, but I mean, child labor, gender equity, all those things.
Juan Esteban Orduz:
But then the economic part, not many people are looking at that which is basically the income of the coffee growers. And one of the things you see is that poverty is the biggest predator of the environment, of the society, of everything. Because if you cannot feed your children, if you cannot send them to school, you will not take care of the water source of the tree or a certain bird.
Juan Esteban Orduz:
And certainly you will not pay attention to other things or discrimination, those things. So we said, okay, we need to make all these three get together, develop the standards. We developed them already. We designed them already. We did the process, was to design them. We have to discuss them with some of the big payers in the industry. It's like, what do you think of this? Give us your feedback.
Juan Esteban Orduz:
And, they're all very happy because this is not just Colombia's doing something there. We want this to be, to also to be useful for the industry and the intrinsic good for Colombian, but also to be something that's good for the industry. If that works well and we hope we did design the standards, as I said, we are going to... We went to the field, make a service on about 2000 farms. We are processing that. We're going to the field again, in November, around 2000 and we'll start signing the implementation program and working in that in next year in 2019.
Juan Esteban Orduz:
And we expect to have not just have Colombian coffee, become sustainable environment socially, and more importantly, economically, but also that if you are a roaster and you're looking for sustainable coffee, Colombian can become your one stop shop because every single bean that comes from Colombian meets the sustainability standards that the market's looking for.
Juan Esteban Orduz:
And this is something that everybody will follow path at some point. And what, again, what our advantage is not just the structure that we have, the will of the coffee growers, but we always have had a governmental support when we develop these programs because they recognize the importance of coffee for the social fabric of Colombian.
Juan Esteban Orduz:
One of the key elements here. And, that's something that we've been discussing also with the industry is climate change. And everything is connected because people, when in many cases we talk to people about climate change, they think it's something kind of out there, but you know exactly what it is and the tropical belt of the world, which is where we are, nobody knows this, but where we are, it is a reality. And, you see it, you see that the temperature changing, you see the rain patterns changing.
Juan Esteban Orduz:
So now it's very difficult to predict, how the crop is going to come. Is it the quality, the size of the bean? All those things have become very difficult. So we need to work on those things. We were not going to prevent or seize climate change, but we certainly can work on mitigation and adaptation to that and try to make sure that what we do, whatever we do will not increase that situation.
Juan Esteban Orduz:
And when you have the rain patterns changing, for instance, and you have a low production, farmers will be harmed directly, the income will be immediately harmed. So who's paying for that? In the end, the farmer is the one that takes all the heat for everything, basically. And, that's one of our biggest concerns. And let me give you a little something information. There's some data that go from a study not long ago. There's a study from the University of Hawaii, not about coffee, very interesting, which is they looked at the tropical belt of the world. And they tried to identify, when is the... What they call the Temperature Departure Date going to happen? Temperature Departure Date is the moment when the highest temperature in someplace will become the lowest.
Juan Esteban Orduz:
In average, in the world, in the tropical belt specifically, it'll be 2047, if we don't do anything. So in average, in the tropical belt and they measure cities, they didn't measure the countryside. But, it's basically the same for the whole. You are going to have this in average is going to be the point where the highest temperature will become the lowest and that's traumatic for every, every possible crop. And it will start, continue expanding. And it will reach via let's say the north and the south beyond the center of the equator, let's say at some point. So it's all those things are big concerns to us. We've been working on trying to address all those issues from the environmental standpoint.
Juan Esteban Orduz:
But the environment is, if you look at the range and everything are directly connected to the social part and directly connected to the economic part. So all those things and all those things we discuss with the industry all the time, we're trying to see what, what can be done. We trying to do our part is Colombian by the, with a hundred hundred program that also we're working with many NGOs that work on, on, on sustainability to try in many of those in the US, to try to make sure that we can achieve the goal. And we become an example to the coffee world and other countries, as said before, we'll PO follow path, when the moment comes,
Josh King:
If you do everything right, 2027, 100% sustainable coffee, the price for coffee will most certainly continue to rise. ICE operates as we talked about the global benchmark for Arabica coffee. Have Coffee's futures played a role and will they help you fulfill your mission?
Juan Esteban Orduz:
Coffee's future is basically the reflect, the result of what's happening in the market. So, yes, if it goes up, no, if it doesn't basically. The fact of the matter is that the coffee landscape has changed significantly. If you look remember that today you have more than 50% of the roasting of the world in the hands of tree companies. It's the Nestle Group, the JB and Starbucks, mostly the first two.
Juan Esteban Orduz:
And that changes landscape. Let's not keep don't put any, any judgment here, but the fact of the matters, if you are to negotiate with those giants, as a producer, things are more difficult. You, you leverage or your capacity to do something is very difficult. So there's a lot of... I want to say tectonic plaques shifting in the coffee market, maybe at some point you are going to have some origins will disappear.
Juan Esteban Orduz:
The ones were not very well prepared to deal with a storm where we're, that we are in the middle of right now. And, that would be traumatic. You'll hand up having production in the hands of five origins, four, five origins, Colombian, for sur, one of them.
Juan Esteban Orduz:
But then diversity will not be as much as consumers have today. And they will be bad for consumers. They will be really, really bad. You will not have, but you have today, you can drink all these coffees that are fantastic coffee, some not so good. And some are crazy coffees. If can you want to drink the coffee that some of it has passed through it's gastric system? It's up to you. I wouldn't do it, so people like it. But it's to have the option. And, consumers will start losing options very soon if things continue the same way.
Josh King:
Well, this extended coffee break here in the ICE House has been a wonderful journey through Colombian Coffee Juan Esteban. Want to stay on, I'd look forward to continuing, perhaps in Colombian with one of those Willie's Jeeps and you and I could sit down after a couple days worth of picking and I'll rest my sore muscles on a stump and will continue our conversation. Thanks so much for joining us.
Juan Esteban Orduz:
Thank you for inviting me. And I'm making here formal invitation to bring you to Colombian too. We do the same program in Spanish and English in Colombia.
Josh King:
I'd enjoy that. Thanks so much.
Juan Esteban Orduz:
Thank You very much.
Josh King:
That's our conversation for this week, our guest was Juan Esteban Orduz. President of the Colombian Coffee Federation. If you like, what you heard, please rate us on iTunes. So other folks know where to find us. And if you've got a comment or a question, you'd like one of our experts to tackle in a future show, email us at [email protected] or tweet us at NYSE.
Josh King:
This show in particular came as a result of people wanting to know more about what Intercontinental Exchange does in, it's coffee futures business. And we are so glad to be able to bring that to you. Our show this week was produced by Pete Ash and Ian Wolf with production assistance from Ken Abel and Stephen Portner. I'm Josh king, your host signing off from the Library of the New York Stock Exchange. I'm going to have another ice coffee. Thanks for listening. Have a good week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates, make any representations or warranties express or implied as to the accuracy or completeness of this information and do not sponsor approve or endorse any of the content hearing. All of which is presented solely for informational and energy. Nothing here in constitutes an offer to sell or a solicitation of an offer to buy any security or recommendation of any security or trading practice.
