What Nestlé’s $154 Coffee Mill in Mexico Might Mean for Mexican Coffee

A promotional photo accompanying Nestlés press release regarding the new coffee processing facility in Veracruz, Mexico, shows picked coffee cherries at widely varying stages of ripeness.

Nestlé Mexico has announced plans to build a $154 million (USD) coffee processing factory in Veracruz, Mexico.

With the potential to process some 20,000 tons of green coffee per year while directly employing approximately 1,200 people, the facility could have lasting impacts throughout the region’s coffee sector. Whether those impacts are generally positive remains to be seen.

In a press release today, Nestlé Mexico CEO Fausto Costa suggested the facility could provide an economic boon not only to the people directly employed at the facility, but to the country’s entire Southeast region, where the majority of Mexican coffee is produced.

“We are very pleased to share joint objectives with President Andrés Manuel López Obrador and his team,” Costa said. “We both believe in supporting young people, where Nestlé has been a pioneer in the country. We also both believe in the strengthening of the Mexican countryside and the importance of accelerating the growth of the Southeast region. This new investment in Veracruz confirms our commitment to Mexico and its people; the country’s economic stability and competitiveness have been fundamental factors to strengthen us as Nestlé’s fifth largest market worldwide.”

Coffee production throughout the state of Veracruz and much of southeastern Mexico has picked up over the last two seasons after a plant leaf rust epidemic wreaked havoc on the sector beginning in 2011/12. The government-led Plan Integral de Atención al Café (PIAC) sector revitalization effort along with some other public/private investments have since helped revitalize the struggling Mexican coffee sector, at least in terms of volume.

The USDA’s Global Agriculture Information Network estimated that Mexico’s countrywide green coffee production increased from a generational low of 2.2 million 60-kilo bags in marketing year 2015/16 to 4.0 million bags in 2017/18.

While production may be on the rise throughout Veracruz and its neighboring states, that hasn’t necessarily translated into farmer profitability or long-term economic sustainability for producers. In that same USDA report, producers indicated that in the first months of 2018, average prices paid to producers were $120 per 45-kilo bag, while the cost of production was $180 per 45-kilo bag.

Nestlé said that in 2017/18, the company purchased 340,000 69-kilo bags of green coffee in Mexico while providing technical support to more than 5,000 Mexican coffee producers through its Nescafé Plan program.

Yet volume alone does not a sustainable coffee sector make. What remains unclear is what effect 20,000 tons (approximately 262,952 bags) of new coffee moving through the new Mexican facility will have on smallholder farmers and cooperative networks. Experts often characterize the sector as having thousands of smallholder farmers and small mills throughout Mexico’s mountainous coffeelands who may be producing high-scoring coffees, yet are without premium market access.

While Nestlé’s core coffee brands are Nescafé (soluble/instant) and Nespresso (single-serve pods), the company has also acquired the more premium specialty coffee brands Blue Bottle Coffee and Chameleon Cold Brew in recent years. Nespresso also focuses on higher-grade Arabica offerings.

The company has not to this point specified how the facility will be used other than as an advanced industrial wet mill; nor has it made any mention of how the facility might involve coffee quality improvements related to premium market access that might benefit producer networks in its supply chain. (Nestlé has not yet replied to DCN’s request for comment on these questions.)

From a coffee sector perspective, the only meaningful suggestions have related to increased volumes. Yet as the coffee industry has proven time and time again, there’s no clear correlation between higher volumes and healthy supply chains.