Edgar A. Cordero Executive Vice President Colombian Coffee Federation, Inc. September 27th, 2011
Colombian Coffee Grower s Federation (FNC) The FNC is a private non-profit organization, founded in 1927 by the Colombian coffee growers Mission Statement To improve the living standards of nearly 566,000 coffee growers and their families through an effective, democratic and representative organization Vision To obtain a competitive and sustainable coffee sector; strengthen the social network in coffee zones and maintain the Colombian coffee as the best coffee in the world SEPTEMBER 27th, 2011 2
A Democratic Organization National Congress of Coffee growers National Committee Board of directors Every four years the coffee growers of fcolombia elect ttheir local land national representatives. A full 65% of the coffee growers voted in the recent 2010 election. A new election will take place in 2014 Regional Committees 15 Municipal Committees 356 Coffee Municipalities 587 Federated Coffee Growers Growers More than 500,000 Coffee Growers ID SEPTEMBER 27th, 2011 3
Colombian Coffee Growers: 89% have less than 3 hectares COFFEE GROWERS CLASSIFICATION BY COFFEE AREA More than 20 Hect. 5,1 a 20 Hect. 0,49% 4,77% 31a5Hect 3,1 Hect. 5,79% 1 a 3 Hect. 28,36% Less than 1 Hect. 60,59% SEPTEMBER 27th, 2011 4
Colombian Coffee Growers: 89% have less than 7.6 acres The coffee regions are vulnerable communities: COFFEE GROWERS COMPOSITION BY COFFEE AREAS More than 0,49% 50 acres 12.6 to 50 acres 7.7 to 12.5 acres 4,77% 5,79% 2.5 to 7.6 acres 28,36% Less than 2.5 acres 60,59% SEPTEMBER 27th, 2011 5
National Coffee Fund Instrument to improve growers living standards The National Coffee Fund is a treasury account, administered i d by the Federation, created in 1940 to protect and promote the Colombian coffee industry. SEPTEMBER 27th, 2011 6
How does the National Coffee Fund work? INCOMES EXPENSES Coffee growers contributions Coffee Sales NATIONAL COFFEE FUND Purchase Coffee Commercialization Costs Administration Costs Services to the coffee producer (extension, research, quality controls, promotion and advertising, among others) SEPTEMBER 27th, 2011 7
There is a binding agreement between the National Government and the FNC to administer the National Coffee Fund COLOMBIAN GOVERNMENT CONTRACT NATIONAL COFFEE FUND $ SEPTEMBER 27th, 2011 8
The Fund performs the following activities through its administrative agent, the FNC: Guarantees the purchase of coffee. Provides warehousing, sorting, processing and packaging of coffee beans. Provides commercialization (Domestically and internationally) of coffee beans and freeze-dried coffee. Provides public goods and institutional services Worldwide marketing, promotion and advertising Enforcing quality standards Research and development Technical assistance to farmers Invests in the development and competitiveness of the domestic coffee industry. SEPTEMBER 27th, 2011 9
Colombian Coffee Grower s Federation Technological Research - Cenicafé Execution of the Purchase Guarantee Technical assistance through the extension service Quality standards for exported coffees Advertising campaigns Social and physical investments in the coffee regions Management of the National Coffee Fund SEPTEMBER 27th, 2011
Purchase Guarantee A network of about 500 cooperative purchasing points, throughout the Colombian coffee region, that ensures every grower will find a buyer for his coffee at a transparent t and socially responsible price. SEPTEMBER 27th, 2011
THE DIFFERENTIAL A coffee differential is the substitution price, expressed in premiums and discounts, of one type of coffee for another. For Arabica coffees we normally use the NY C as a peg or benchmark but in reality we are determining what the price of one type of coffee should be compared to another type of coffee, including the perceived average value of the certified stocks. SEPTEMBER 27th, 2011 12
Colombian Coffee UGQ Diferential VS Central America and Brasil 84 [ US / lb ] 74 64 54 44 34 24 14 4-6 -16-26 Colombia UGQ Guatemala HB Costa Rica HB El Salvador HG Honduras HG Mexico Lavado Brasil Santos 2/3 21 15.5 8.1 6.9 2.5 09 0,9-8.7 ene-06 mar-06 may-06 jul-06 sep-06 nov-06 ene-07 mar-07 may-07 jul-07 sep-07 nov-07 ene-08 mar-08 may-08 jul-08 sep-08 nov-08 ene-09 mar-09 may-09 jul-09 sep-09 nov-09 ene-10 mar-10 may-10 jul-10 sep-10 nov-10 ene-11 mar-11 may-11 jul-11 sep-11 Source: Complete Coffee Coverage - Inteligencia Competitiva - FNC SEPTEMBER 27th, 2011
Differentials 100 Diferencial Diario Colombia UGQ VS Centro América 2009 11 80 60 ColombiaUGQ Diferencial Guatemala HB Costa Rica HB Diferencial Mexico Lavado Diferencial Honduras HG Diferencial Salvador HG 40 Fuente: Complete Coffee Coverage - Inteligencia Competitiva - FNC US /lb 20 0 20 97 98 99 00 01 02 03 04 05 06 07 08 09 10 06 ene 97 06 ene 98 06 ene 99 06 ene 00 06 ene 01 06 ene 02 06 ene 03 06 ene 04 06 ene 05 06 ene 06 06 ene 07 06 ene 08 06 ene 09 06 ene 10 06 ene 11 11 SEPTEMBER 27th, 2011
50 45 Colombian Coffee UGQ Diferential i VS Central lamerica Mild Arabicas Differentials 2011 [ US /lb ] Colombia UGQ Diferencial Guatemala HB 40 Costa Rica HB Diferencial Mexico Lavado 35 Diferencial Honduras HG Diferencial Salvador HG 30 25 20 20.5 15 16 10 10.5 9 5 4.5 0 1 01 ene 11 09 ene 11 17 ene 11 25 ene 11 02 feb 11 10 feb 11 18 feb 11 26 feb 11 06 mar 11 14 mar 11 22 mar 11 30 mar 11 07 abr 11 15 abr 11 23 abr 11 01 may 11 09 may 11 17 may 11 25 may 11 02 jun 11 10 jun 11 18 jun 11 26 jun 11 04 jul 11 12 jul 11 20 jul 11 28 jul 11 05 ago 11 13 ago 11 21 ago 11 29 ago 11 06 sep 11 14 sep 11 Source: Complete Coffee Coverage - Inteligencia Competitiva - FNC SEPTEMBER 27th, 2011
350,00 00 ICO Indicator Prices (Monthly Average) [US Cents/lb] 2000 11 300,00 250,00 Suaves Colombianos Otros Suaves Robusta 200,00 Naturales Brasileños 150,00 US /lb 100,00 50,00 0,00 ene 00 jul 00 ene 01 jul 01 ene 02 jul 02 ene 03 jul 03 ene 04 jul 04 ene 05 jul 05 ene 06 jul 06 ene 07 jul 07 ene 08 jul 08 ene 09 jul 09 ene 10 jul 10 ene 11 jul 11 Source: OIC Inteligencia Competitiva - FNC SEPTEMBER 27th, 2011
BLACK SCHOLES FORMULA C = S N(d 1 ) - X e -rt N(d 2 ) Where: C = price of the call option S = price of the underlying stock or asset X = option exercise price or strike price r = risk-free interest rate T = current time until expiration N() = area under the normal curve d 1 = [ ln(s/x) + (r + σ 2 /2) T ] / σ T 1/2 d 2 = d 1 - σ T 1/2 σ = volatility of returns of underlying asset SEPTEMBER 27th, 2011 17
THANK YOU September 27th, 2011