THE LAO COFFEE INDUSTRY: IMPLEMENTING
VERTICAL INTEGRATION FOR A SOCIAL
CAUSE AT BOLAVEN FARMS
Their hope is our joy.
-Bolaven Farms about its resident farmers
Founded in early 2007 by Sam Say, a Lao refugee who lived in Canada and Hong Kong, Bolaven Farms was a coffee business with a social purpose. With an office in Hong Kong and a farming facility in Laos, the venture’s mission was to provide high-quality coffee to the worldwide public while helping to alleviate poverty among coffee farmers. To achieve this lofty goal, Say developed a business model that involved a full integration of the coffee supply chain, from planting the coffee seed to selling the final branded product to wholesale and retail customers. The model hinged on Say’s ability to raise Lao coffee production to international standards, both in its quality and quantity. Once a stable supply of coffee was achieved, Say had to find customers who were willing to pay a premium price for the coffee he produced.
To achieve this, Bolaven Farms trained its own cohort of local farmers in modern production techniques on its farm. The original idea was to provide farmers who graduated from the programme with a US$5,000 loan so they could set up their own farms and start supplying high-quality coffee to Say’s venture. However, it quickly became apparent that the farmers lacked the necessary skills to properly invest their loans.
On the other side of the supply chain, Bolaven Farms began to test the market while its own farmers were setting up for production. Say obtained high-quality coffee from a local cooperative run by a French non-governmental organization (“NGO”) and distributed it through his own channels. However, he had a hard time finding customers who were willing to pay a premium price for his coffee in the mature and highly competitive coffee market.
Marta Dowejko prepared this case under the supervision of Dr Gilbert Wong for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes. © 2011 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the internet)—without the permission of The University of Hong Kong. Ref. 11/494C
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The Lao Coffee Industry: Implementing Vertical Integration for a Social Cause at Bolaven Farms
Bolaven Farms expected its first coffee harvest by early 2011. Four years into operations, Say had personally invested US$4 million in the project. It was time to re-evaluate the business model and make the venture a success without compromising on its mission.
The Worldwide Coffee Industry
Worldwide Coffee Production and Consumption
Coffee was one of the world’s most important tropical commodities, with 6.1 million tonnes being traded worldwide in 2008. Three main types of coffee were being traded: green, unroasted coffee beans; roasted coffee beans; and soluble coffee products. Green coffee accounted for more than 80% of the worldwide coffee trade, in terms of value and volume.1 Two principal varieties of coffee beans, Arabica and Robusta, made up the majority of trade.
The International Coffee Organization valued the 2007 coffee export market at US$12.7 billion, with an annual growth rate of 17%.2 Between 70 and 75% of the coffee produced each year was intended for export. The retail value of the coffee traded was estimated at US$32.1 billion in 2009, up 6% compared to 2007 and 42% compared to 2004.3 The largest coffee producers, Brazil, Vietnam and Columbia, accounted respectively for...