Green Mountain Coffee Roasters (GMCR)

Green Coffee Cost and Supply

GMC sold approximately 32 million pounds of coffee in fiscal 2008. GMC utilizes a combination of outside brokers and direct relationships with farms, estates, cooperatives and cooperative groups for our supply of green coffees. Outside brokers provide the largest supply of our green coffee. Coffee is the world’s second largest traded commodity and its supply and price are subject to high volatility. Although most coffee trades in the commodity market at a price referred to as the “c” price (the price per pound quoted by the Coffee, Sugar and Cocoa Exchange), coffee of the quality we are seeking tends to trade on a negotiated basis at a substantial premium or “differential” above the “c” price, depending upon the supply and demand at the time of purchase. Supply and price can be affected by multiple factors, such as weather, pest damage, politics and economics in the producing countries.

Cyclical swings in commodity markets are common and 2008 was an especially volatile year for the “c” price of coffee. The “c” price of coffee climbed to record levels until mid-year and declined significantly along with the broader commodity markets in the second half of calendar 2008. It is expected that coffee prices will remain volatile in the coming years. Additionally, many industry experts are concerned about the ability of specialty coffee production to keep pace with demand.

For coffees that GMC purchases with differentials above the “c” price of coffee, we generally fix the price of our coffee contracts for approximately two fiscal quarters, and at times three fiscal quarters, prior to delivery so that

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we can adjust our sales prices to the market. GMC believes this approach is the best way to provide our customers with a fair price for our coffee. On September 27, 2008, we had approximately $73.2 million in green coffee purchase commitments, of which approximately 59% had a fixed price. In addition, from time to time we purchase coffee futures contracts and coffee options when we are not able to enter into coffee purchase commitments or when the price of a significant portion of committed contracts has not been fixed. On September 27, 2008, we held futures contracts covering approximately 1.2 million pounds of coffee.

In fiscal 2008, 40% of our purchases were from farm-identified sources, which means that we know the farms, estates or coops, and can develop a relationship directly with the farmers. We believe that our “farm-identified” strategy helps us secure long-term supplies of high-quality coffee and achieve greater pricing stability in our supply chain.

Green Coffee Cost and Supply

Green Coffee Cost and Supply

GMC utilizes a combination of outside brokers and direct relationships with farms, estates, cooperatives and cooperative groups for our supply of green coffees. Outside brokers provide the largest supply of our green coffee. Coffee is the world’s second largest traded commodity and its supply and price are subject to high volatility. Although most coffee trades in the commodity market, coffee of the quality we are seeking tends to trade on a negotiated basis at a substantial premium or “differential” above commodity coffee pricing, depending upon the supply and demand at the time of purchase. Supply and price can be affected by multiple factors, such as weather, pest damage, politics and economics in the producing countries.

Cyclical swings in commodity markets, based upon supply and demand, are common and it is expected that coffee prices and differentials will remain volatile in the coming years. While in past years, green coffee prices have been under considerable downward pressures due to oversupply, green coffee prices have increased significantly since 2005. The production of commercial grade coffee is on the rise, but many industry experts are concerned about the ability of specialty coffee production to keep pace with demand. With the growth of the specialty coffee segment, it is important that prices paid to farmers remain high enough to support world production and development of the top grades of coffees.

For coffees that GMC continues to purchase with differentials against the commodity market, we generally fix the price of our coffee contracts two to nine months prior to delivery so that we can adjust our sales prices to the market. GMC believes this approach is the best way to provide our customers with a fair price for our coffee. On September 29, 2007, we had approximately $44 million in green coffee purchase commitments, of which approximately 36% had a fixed price. In addition, we do from time to time purchase coffee futures contracts and coffee options to provide additional protection when we are not able to enter into coffee purchase commitments or when the price of a significant portion of committed contracts has not been fixed.

In fiscal 2007, 39% of our purchases were from farm-identified sources. We believe our “farm-identified” strategy will continue to result in improved product quality, product differentiation, long-term supply and pricing stability. In addition, we believe that our efforts will have a positive impact on the living and working environments of coffee farm workers and their families.

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Green Coffee Cost and Supply

Green Mountain Coffee utilizes a combination of outside brokers and direct relationships with farms, estates, cooperatives and cooperative groups for our supply of green coffees. Outside brokers provide the largest supply of our green coffee. Coffee is the world’s second largest traded commodity and its supply and price are subject to high volatility. Although most coffee trades in the commodity market, coffee of the quality we are seeking tends to trade on a negotiated basis at a substantial premium or “differential” above commodity coffee pricing, depending upon the supply and demand at the time of purchase. Supply and price can be affected by multiple factors, such as weather, politics and economics in the producing countries.

Cyclical swings in commodity markets, based upon supply and demand, are common and it is expected that coffee prices and differentials will remain volatile in the coming years. In addition, a number of factors, such as pest damage and weather-related crop failure could cause coffee prices to climb. While in past years, green coffee prices have been under considerable downward pressures due to oversupply, green coffee prices have increased significantly since 2005. The production of commercial grade coffee is on the rise, but many industry experts are concerned about the ability of specialty coffee production to keep pace with demand. With the growth of the specialty coffee segment, it is important that prices paid to farmers remain high enough to support world production and development of the top grades of coffees.

For coffees that Green Mountain Coffee continues to purchase with differentials against the commodity market, we generally fix the price of our coffee contracts two to nine months prior to delivery so that we can adjust our sales prices to the market. Green Mountain Coffee believes this approach is the best way to provide our customers with a fair price for our coffee. Approximately 42% of our Company’s estimated coffee requirements through September 29, 2007, the end of our 2007 fiscal year, had been contracted for as of September 30, 2006. Of these fiscal 2006 coffee purchase commitments, approximately 49% had a fixed price. In addition, we do from time to time purchase coffee futures contracts and coffee options to provide additional protection when we are not able to enter into coffee purchase commitments or when the price of a significant portion of committed contracts has not been fixed.

In fiscal 2006, 47% of our purchases were from farm-identified sources. We believe our “farm identified” strategy will continue to result in improved product quality, product differentiation, long-term supply and pricing stability. In addition, we believe that our efforts will have a positive impact on the living and working environment of coffee farm workers and their families.

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