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Feldman Replies- Letter to the Editor of West Hawaii Today

Coffee study
Thursday, March 18, 2010 8:28 AM HST

Restating the case

I would like to set the record straight regarding WHT articles on Feb. 17 and March 10 based on my economic study.
The study was entitled “Economic Effects of Blending Kona Coffee A Preliminary Analysis” not “Economics of the Hawaii Coffee Industry,” as reported. This distinction is important as it identifies the preliminary nature of the study, as well as its focus on the impacts of blending. Both articles mistakenly indicate that farmers lose $14.4 million due to blending of Kona coffee. My study states this figure is the extra profit that blenders gain from the use of the Kona name on 10 percent blends. The negative economic impacts on farmers might well exceed this extra profit, but I am not able to estimate that negative impact with available data.

The March article’s continuation heading “Blenders purchase at least 50 percent of Kona’s crop” is based on a statement by Jim Wayman of Hawaii Coffee Co. While this may be accurate, it is misleading in regard to blending.

Blenders such as Hawaii Coffee Co. purchase a large amount of Kona coffee that is sold as pure Kona. There is no basis for assuming that this part of the crop would be glutting the market if there were no 10 percent blends. It is the 10-15 percent of the crop, namely the prime grade (the lowest grade of Kona coffee), that is typically used in the blends. Indeed, if the only coffee identified as Kona were pure Kona, it is quite possible that consumer demand for Kona coffee would rise.

At present some consumers who are disappointed in the inferior taste of Kona blends dismiss all Kona coffee. It should be noted that in independent tastings, expert cuppers were unable to distinguish 10 percent Kona blends from non-Kona coffee.

My analysis was preliminary, based on best publicly available data. All of the data sources and assumptions were carefully documented. Unfortunately, the publicly available data do not report exactly how much of the Kona coffee crop is used in 10 percent blends. Published HDOA sources indicate that prime Kona constitutes
10-15 percent of the crop. Blends combine this grade with non-Kona commodity coffees. The blend labeling does not identify the grade of the Kona coffee used or the origin of the remaining 90 percent of contents. Only this 10 to 15 percent of the crop would come back on the market if blending were ended.

Regarding Wayman’s critique of my blending profit estimate, I would note that in the absence of accurate information I made carefully stated assumptions regarding blenders’ costs. The $9 per pound that he suggests he pays for green Kona does not apply to the lower grade coffee used in blends. The blenders are in a position to reveal both these costs and the exact quantity of Kona coffee used in blends.

I would welcome better data and would be happy to revise my analysis accordingly. Simply stating that the assumptions are incorrect does not shed any light on the subject. Wayman suggests that a thorough marketing study is needed before changing the status quo. Such studies were already conducted by the state in 1990 and 2006. If the blenders were more forthcoming with the actual blending quantity and cost data, the merits of the
public’s interest in this important issue could be decided at a modest cost.

In the interest of full disclosure, I am a small Kona coffee farmer as well as a consulting economist with a doctorate in Natural Resource Economics, an MS in Agricultural Economics and 30 years of professional experience. The full text of my study can be read here:
Economic Efforts of Blending Kona

Marvin Feldman