Growing up in a family with five kids, travel was never easy or common. The furthest I had ventured outside of Pennsylvania was New York City. Then I found this Plus-3 program which would allow me to earn three credits outside of the country. I knew I had to be a part of it. With four siblings, I would not have even felt comfortable asking my parents for $4,600. But people told me that Pitt Business gives you an opportunity to earn it, so I kept my hopes up. As soon as the scholarship became available, I began drafting my essay and was thrilled to be selected. This scholarship has allowed me to further my education in a unique style that will impress employers and recruiters alike in the future. I plan on branching from KPMG accounting this summer into more investment-related financial services. One thing I know about financial services is how globally connected firms are. Decisions made in the U.S. affect other countries’ decisions (a huge deal recently) and vice versa. Thus, by visiting another country, I could witness how economies, business models, and politics vary across the globe. Having a good understanding of this will propel me into the investment industry and give me a strong advantage over my peers.
Specifically, in Costa Rica I have learned a lot about the finance and economics behind running a coffee business. Though, I will never run a coffee business, the ideology behind decision making is like running any business. Now, I will do my best to briefly summarize what I have learned about management throughout parts of the supply chain.
To begin, let’s discuss the many decisions that need to be made to manage a coffee farm. The business must first decide what part of the supply chain it will become. The farms could grow their own coffee beans and sell them. Doing so will allow them to ensure good quality beans and utilize any sustainable practices they prefer. This may be costly, but these farms can sell these beans to other roasting facilities or roast them themselves. Many farms do both which allows them to diversify their business model. In addition to this, running a coffee farm is expensive. A large amount of start-up capital is necessary, since many machines are used. They must decide how they will finance their operations. They can either borrow from banks like most private companies do or become a public corporation such as Starbuck’s. As Starbuck’s is larger than smaller plantations we visited, I could see the benefits of having shareholders regarding the ability to expand your business model. Properly evaluating decisions and their potential outcomes is a key duty of the owners of these farms, and whether or not they do so correctly could affect the success of their coffee farm.
I learned a lot about opportunity cost when I visited these plantations. Costa Rica is second in sustainability in the world, but this means they must sacrifice profit maximization at times. For instance, some plantations preserve forests on their farm, but they could be using these acres to produce more coffee beans; however, all owners recognize the worth of preserving the environment. American corporations almost always profit maximize, though. Also, sometimes, companies expedite the drying process by using machines as opposed to using the natural process. This lowers the price of the beans but allows for faster deliveries. Managers must take these factors into account.
Regarding roasting the coffee, the first decision that must be made is one of the most important: Will you roast your own beans or will you buy unroasted beans from local coffee farms to roast and sell? The ladder can be more desirable. Without having to spend money on capital for growing coffee beans, a café could divert most of its funding to marketing and market research, which brings forth differentiated products and techniques. Next, roasting companies must accurately predict demand because as Café Rey’s export manager explained, it wastes time and money to roast beans before they are ready to be sold (also affects the freshness).
Selling is the final step. The important thing that management must do in this stage is monitor coffee prices on the New York Stock Exchange. Monitoring prices helps them to make the most profit possible, since they purchase the beans when prices are low (if they are a roasting company) and sell them roasted when they are high. This allows them to convert expenses into revenues at a maximizing rate. Some roasting companies sell their roasted coffee to retail stores, and they also sell them to restaurants and hotels/airports, whom they give the option of franchising. They incentivize these firms to do so by training their baristas and giving them the right equipment to make sure they produce great quality coffee. Although this will cost a lot of money, it is a mutually beneficial relationship for both parties. With selling directly to consumers, managers must determine how exactly customers can purchase the product. For instance, some businesses own little cafeterías (Coffee shops) where they earn a good amount of revenue. As a manager, you must decide if it is worth it to fund these coffee shops, ensure baristas are skilled, and set reasonable prices. Another decision managers must make is whether or not there will be an ecommerce platform. Ecommerce helps them to reach international markets and tourists outside of their facilities. Clearly, throughout each step of the process, management needs to be spot-on to run a successful business.
Being able to see first-hand how much hard work goes into running a coffee business has made me grateful of manual labor workers and has made me aware that smart people are not only doctors, lawyers, and CEOs of banks; they are coffee growers and managers too. For the people that conduct the manual labor, there is so much physical discipline and mental toughness required to work such long repetitive hours. For the owners, I would have never come close to approximating the amount of education they have. It is so impressive how much knowledge they have about coffee and more so impressive how much they know about markets and how the environment will affect these markets, etc. I have learned much from them. When I go back to the states, and I sit down at a local coffee shop, I will probably contemplate the entire meal: where the coffee came from, how much work was put into it, and how difficult it was to carry out operations. I am sure that it will make the carefully grown coffee taste that much sweeter!