# **V.  CHALLENGES and STRATEGIES for the COFFEE and COCOA SECTORS**

The coffee and cocoa sectors in the Dominican Republic face major challenges, some from external sources and others internal. External challenges include fluctuations in global markets and hurricane hazards. Internal challenges include problems in the marketing systems and imperfections in input markets. Both types of challenges require proactive strategies; neither is insurmountable. We examine both commodities together because of the similarities in challenges and strategies; while in certain cases, the differences are illuminating. Several countries in Central America and the Caribbean have found themselves in similar situations with respect to the export of primary commodities such as coffee and cocoa. Many are following similar recommendations and pursuing similar strategies. This overlapping of interests justifies greater regional coordination of efforts (e.g. the regional USAID specialty coffee initiative that includes five Central American countries and Dominican Republic). Alternatively, if all countries in the region adopt similar strategies they will be competing for the same market niches, and this competition might create a new cycle of problems.

# **A.  Overview of Strategies for the Coffee Sectors of Central America and Caribbean**<sup>**62**</sup>

Central American and Caribbean producers should have comparative advantage in the production of coffee since they have growing areas with agro-ecological conditions to produce high quality products. Few countries in the region have made progress in exploiting this advantage. The region has potential to improve quality and penetrate high-quality specialty market segments for coffee. Quality improvement programs need to focus on on-farm production practices and postharvest practices such as coffee milling, but markets and their structure determine whether efforts to improve quality will be rewarded.

Several elements form the core of a strategy to promote coffee quality: a) ability to recognize quality in the marketing process, b) identifying the key problems affecting quality, c) defining alternatives for overcoming these problems; and d) determining policies and investments to facilitate adoption of these alternatives. To be effective, a quality enhancement strategy needs to be comprehensive and applied to the entire production and marketing chain. Work is needed in: a) identifying and supporting geographic areas with suitable agro-ecological conditions for quality production; b) promoting production of quality beans by designing and implementing broad coffee bean management and programs aimed at reducing defects; c) pursuing value-added and marketing strategies aimed at building partnerships and long-term market links; d) removing obstacles within marketing systems which prevent transmission of quality-related price signals to producers; and e) exploring promotional strategies such as e-trade and auctions, cup of excellence and market information systems.

Coffee price fluctuations and downward price trends represent a major challenge to the sector. This price variability is a major source of risk faced by all producers. Central American and Caribbean countries also are exposed to hurricanes and other severe weather problems. Competitiveness depends, in part, on the ability to deal with price and weather shocks. Risk management instruments can reduce the impacts of price and yield fluctuations and protect against negative income shocks. Effective risk management can improve the credit worthiness of the sector and increase flexibility in marketing decisions. It can also encourage a longer-term perspective and promote investments in improved technologies.

> 62 Most of the ideas in this sub-section were adopted from Varangis, Siegel, Giovannuci, Lewin, (2003).

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